This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
Green Street Advisors
July 23: Broader geographic shifts for office fundamentals are expected in the coming years. Green Street favors non-gateway markets for several reasons, including less economic sensitivity than gateway market counterparts, a lower cost of living, and better fiscal health.
The notion that a well-located office building full of highly paid workers in or near a dense, expensive city is the best way to operate a successful firm has been challenged by the acceptance of remote work. Employers and employees see more of their income lost due to taxes in gateway markets compared to Sunbelt markets, which has partially driven the recent large net migration toward the Southeastern U.S. Coupled with an increase in individuals who no longer regularly go into the office, many more may consider moving further away from coastal city centers.
Those able to work from home on a full-time basis have the freedom to take their jobs with them. The work-from-home utilization rate measures the pre-Covid market-level desirability for remote workers. It suggests that less expensive locales with nice weather will attract talent from high-cost and high-tax markets.
Green Street expects long-term office fundamentals to suffer from a permanent shift to greater work from home. The likely result is lower long-term NOI [net operating income] growth and a negative impact to expected returns for the sector.
Down Goes the Dollar
July 23: The U.S. dollar was remarkably strong during the first quarter of 2020, benefiting from the flight to safety and rallying to nearly a 10% year-to-date gain at the stock market’s low point on March 23. However, as equity markets have recovered, and the U.S. has continued to fight the Covid-19 pandemic, the dollar has given up nearly all of those gains. This trend may continue, and if so, it would have important implications for a range of asset classes.
The Bloomberg Dollar Spot Index, a more diversified basket than the commonly cited DXY Index, is nearing a critical uptrend line. A break of this support could mean that weakness seen over the past few months is more than just an unwinding of the flight to safety…This isn’t just a technical story, though. Rising twin deficits have historically been followed by a weaker dollar, meaning the fundamentals support this move.
The commodity rally is another reason to believe the market may be looking toward a weaker dollar. Commodities are typically viewed as having an inverse relationship with the dollar, since the dollar is effectively the denominator of a hard asset….