The 20-year Treasury note, as tracked by the iShares 20+ Year Treasury Bond ETF (TLT), closed unchanged for Friday's session, while the S&P 500 index (SPX) and the Nasdaq 100 (NDX) both closed lower as investors took profits. However, a larger picture of the bond market may spell out the fact that money is coming out of fixed income investments. It is possible that this may be a bit of a sector rotation allowing fund managers to rebalance portfolios and position for 2020 by moving money into selected stock sectors.
The chart below shows that TLT, even at its peak, was seeing money flow out of it. The chart below shows the price action for TLT and compares it to the Chaikin Money Flow indicator. This indicator does not show direct outflows but rather tracks price and volume information to quantify how much money appears to be traded (whether in or out of the fund).
This graphic seems to indicate that investors are putting less money into TLT, likely a contributing factor to its decreased price of late. This leads astute investors to question whether that money will find its way into stocks. The answer is probably yes, especially if earnings season seems to continue with positive news from tech companies next week.
The Sector You Didn't Think to Check
Not too long ago, State Street Global Advisors added a new sector ETF to its list of popular sector funds. This one, the Real Estate Select Sector SPDR Fund (XLRE), tracks the commercial real-estate sector. It contains holdings such as American Tower Corporation (AMT), Crown Castle International Corp. (CCI), Prologis Inc. (PLD), Equinix, Inc. (EQIX), Welltower Inc. (WELL), and Ventas, Inc. (VTR).
These stocks range from real estate investment trusts (REITS) to companies that rent out every kind of physical space such as storage lockers and cell towers. The sector has outperformed the major market indexes so far in 2019 and moved significantly higher today.
Ventas Might be Comparatively Cheap
Like other stocks in the commercial real estate sector, Ventas, a health care REIT, has had a good year so far. However, it has lagged in comparison to other stocks in the sector. A quick look at its price action identifies that it is currently resting at a low point in its upward trend. This may signal a rare moment where the stock is relatively inexpensive compared to its peers, a condition that often encourages institutional buyers to consider the stock.
The Bottom Line
Stocks fell back slightly Friday but ended the week higher, even as bonds remained unchanged. The bond market seems to have been losing customers, so to speak, as it appears money may be flowing out of fixed income funds. The commercial real estate sector has outperformed the market and holds a few star stocks doing very well in 2019. Among them, Ventas seems to be a comparative bargain.
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