—— BlackRock ETF Ramps Up Tech Holdings; Nvidia Stock Surges 29%; U.S. Apartment Owners Bleed Cash; Chanel Handbags May Rise Again in September; U.S. Home Sales Slip Again; T-Bill Yields Exceed 7%; Office REIT Index Hits New Low
1. BlackRock ETF Ramps Up Tech Holdings
This Friday, BlackRock’s $9 billion momentum ETF—MTUM—will undergo a portfolio rebalancing.
At that time, the fund will sell some inflation-resistant energy stocks and increase its tech allocation from 3% to 21%.
After the portfolio reallocation, MTUM will become less defensive, but the higher tech weighting will also lift the ETF’s valuation multiples.
Christopher Harvey, equity strategist at Wells Fargo, said the ETF will become more growth-oriented, though the increased exposure to tech stocks could also carry downside risk.
MTUM is expected to add weight in companies like Microsoft, Meta, and Nvidia—three of the top five performers in the S&P 500 this year.
BlackRock will reduce its holdings in more defensive energy and healthcare stocks.
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2. Nvidia Stock Surges 29%
Nvidia, the world’s most valuable chipmaker, said Wednesday it expects $11 billion in revenue for the quarter ending in July—far above analysts’ forecast of $7.18 billion.
After-hours trading saw Nvidia’s stock surge 29%, easily hitting a new record high.
Nvidia’s sharply raised revenue guidance indicates the AI boom is delivering far greater benefits than expected.
CEO Jensen Huang told analysts that the company has received massive orders from data centers—trillions of dollars’ worth of infrastructure is expected to be upgraded to support the accelerated computing needs of generative AI.
The AI frenzy has delivered unexpected upside to Nvidia, and revenues could far exceed market forecasts.
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3. U.S. Apartment Owners Bleed Cash
Data from Trepp shows that many U.S. multifamily property owners can no longer cover their loan costs, affecting $47 billion in loans.
What’s worse for landlords is that climate change risks are driving up insurance premiums, property taxes are rising, and asset values are falling.
Jay Parsons, chief economist at RealPage, said no one anticipated such a spike in costs. Landlords who issued floating-rate loans earlier are now forced to pay much higher borrowing expenses.
For now, the “disaster” is somewhat contained, as many owners bought interest rate caps to avoid the worst-case scenarios. But as those rate caps begin to expire, more landlords will face financial stress.
As more property owners struggle to manage operating costs, the multifamily acquisition frenzy may begin to fade.
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4. Chanel Handbags May Rise Again in September
Chanel CFO Philippe Blondiaux revealed in an interview today that the company raised global handbag prices by 8% in March. Chanel typically adjusts prices every March and September based on market conditions.
Currently, a medium-sized handbag in France sells for €9,700—€1,900 more than 18 months ago. By comparison, a 25 cm Hermès Birkin bag was originally priced at €8,000.
Blondiaux said price adjustments are mainly driven by raw material inflation and currency exchange rate fluctuations.
In 2022, rising handbag prices and sales helped increase the company’s revenue by 17%.
Chanel handbag buyers tend to be high-income consumers who are less affected by economic swings.
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5. U.S. Home Sales Slip Again
According to data released today by the National Association of Realtors (NAR), the U.S. pending home sales index fell to 78.9 in April, missing economists’ forecast for a 1% increase. Key reasons included limited inventory and high interest rates.
Declining sales in the Northeast offset gains in all other regions. Year-over-year, U.S. existing home sales are down 23%.
April’s existing home sales hit a three-month low, while new home sales—unaffected by inventory constraints—rose to the highest level since March 2022.
The market broadly agrees the Fed hasn’t finished raising interest rates, and mortgage rates may still climb.
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6. T-Bill Yields Exceed 7%
On Wednesday, yields on Treasury bills maturing in early June spiked to 7% as investors feared the U.S. could default due to stalled debt ceiling negotiations.
Treasury Secretary Janet Yellen said that Treasury bills maturing on June 1 and 6 carry the highest default risk, and urged faster progress in talks.
Meanwhile, the cost of default insurance derivatives on U.S. sovereign debt also rose. If negotiations fail to advance, major global credit rating agencies may downgrade the U.S. government’s rating.
If the U.S. defaults, Treasury yields will soar, and its credit rating will likely be downgraded.
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7. Office REIT Index Hits New Low
So far in 2023, the S&P Composite 1500 Office REITs Index—which tracks office real estate investment performance—has plunged 27%, falling below its lowest level since July 22, 2009.
Office landlords only make up 6% of the broader REIT sector, so the overall S&P Equity REIT Index and S&P 500 real estate stocks have only dropped around 5% over the same period.
Piper Sandler analyst Alexander Goldfarb joked that the two worst ways to lose money are owning a boat or an office building—at least with a boat, you can watch the sunrise with friends.
Office properties have dragged down the entire commercial real estate sector.
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This content is sourced from Financial Times, Bloomberg, and The Real Deal, among other financial news outlets.