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TheStreet Open House

Residential REITs: Financial Loser

NEW YORK ( TheStreet) -- Residential real estate investment trusts were the worst performing group in financial sector, amid mixed expectations the Federal Reserve could begin "tapering" up to $85 billion in monthly mortgage bond purchases starting this fall.

The largest residential REITs on the S&P 500 Index, including Equity Residential (EQR - Get Report), AvalonBay Communities (AVB - Get Report) and Apartment Investment and Management Co. (AIV), all lost ground in Monday trading, as the financial sector and broader indexes fluctuated between gains in excess of 1%.

Top performing financials included E-Trade Financial (ETFC - Get Report), Schwab (SCHW) and Blackrock (BLK) amid optimism retail investor flows into equity markets could bolster brokerage earnings.

IntercontinentalExchange (ICE) and NYSE Euronext (NYX) also rose in excess of 2% on a Financial Times report the EU antitrust regulators may approve a merger between the two exchanges.

Among large cap banks, JPMorgan (JPM - Get Report), Bank of America (BAC - Get Report) and Wells Fargo (WFC - Get Report) posted the strongest gains, rising between 0.5%-to-1%.

Stocks and financials tailed off sharp early gains through the trading day as traders and investors prepared for the Federal Reserve's newest policy-making announcement, which is due Wednesday afternoon.

The Fed will release an updated statement on the federal fund rates and its monetary stimulus measures, and will simultaneously print its latest economic forecasts for the economy. Chairman Ben Bernanke expects to emerge shortly afterwards to hold a press conference on these issues.

While Bernanke is unlikely to make any policy change to short term rates, Wall Street will be parsing the Fed chair's words for any indication the Central Bank could slow its bond buying. Such signs could push mortgage rates higher, potentially cooling growing demand for new and existing home sales.

REITs generally have underperformed the financial sector as speculation has mounted about the timing and nature of Bernanke's end to the Fed's bond buying program. The Financial Times reports Bernanke will continue to discuss the Fed's bond buying program at its upcoming meeting.

"Uncertainty -- about the path of growth, inflation and the impact rising interest rates will have on the economy - is likely to prompt the Fed to dampen market expectations of an early taper," noted Drew Matus, deputy chief U.S. economist for UBS Securities in Stamford. "In our opinion the deciding factor for the timing of the initial taper will likely be the path of inflation."

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