LIVE MARKETS-When the Fed cuts, the roof rises: BCA bets big on real estate
BCA Research has upgraded the real estate sector to overweight, anticipating a rebound as the Federal Reserve is expected to cut rates by at least 25 basis points. Chief U.S. equity strategist Irene Tunkel noted that lower interest rates will reduce mortgage costs and boost housing demand, making real estate more attractive. The sector is currently seen as oversold and undervalued. In contrast, BCA has downgraded the semiconductor sector to neutral after a significant rally, citing overvaluation and seasonal market pullbacks as reasons for caution.
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WHEN THE FED CUTS, THE ROOF RISES: BCA BETS BIG ON REAL ESTATE
Real estate is back in vogue, at least according to Irene Tunkel, chief U.S. equity strategist at BCA Research, who has upgraded the sector to overweight, citing a “clear catalyst for a rebound” as rate cuts loom. Market expectations the Fed will cut rates by at least 25 basis points at its September meeting stood at almost 90%, according to CME’s FedWatch Tool, up from about 60% a week ago.
“Monetary easing is a welcome catalyst for a rebound, as the sector is currently oversold and undervalued.” Tunkel added
Real estate is one of the most rate-sensitive sectors in the market as lower interest rates reduce mortgage costs, boost housing demand, and increase the attractiveness of REITs as income-generating assets.
Real estate has lagged the broader market year-to-date, but falling yields and cheaper valuations are setting the stage for a catch-up rally. BCA’s proprietary indicators show the sector is both “cheap and oversold,” Tunkel added.
Meanwhile, the firm is locking in gains on tech. After a blistering 30% rally in semiconductors this year, BCA has downgraded the sector to neutral.
“Semiconductors are now overbought,” Tunkel said, noting that the firm is closing its overweight and booking an 18.7% profit relative to the S&P 500.
Seasonality is also a factor. “Markets often pull back in August and September,” she warned, suggesting that a tactical pause is prudent even as the long-term case for generative AI remains intact.
(Rashika Singh)
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