Market Rally After Latest Inflation Data A 'Foreteller' of What's to Come

The recent stock rally following better-than-expected inflation data is a “foreteller” of what’s to come over the next few months, Hessam Nadji, President and CEO of Marcus & Millichap, told CNBC this week.

“It goes to show that even early signs of recession perhaps being delayed or going back to the soft landing scenario that people have given up hopes on, because the Fed has been so aggressive on interest rate increases, can make a difference in the psychology and the confidence level in the investment community,” Nadji told CNBC.

Nadji was referring to economic data released last Thursday showing that the Consumer Price Index moderated to a 7.7 percent gain year-to-date through October. Analysts had predicted 7.9 percent, while the YTD figure stood at 8.2 percent through September. In response, the S&P 500 ticked up 5.5 percent, its best performance in a single day since April 2020.

“For us in the commercial real estate, the successive interest rate increases have really created a shock in that the math in underwriting commercial real estate, whether it’s a apartment building, a shopping center, a hotel, makes a significant difference on the valuation because buyers are looking for a specific return,” Nadji said. “Compound that with the Fed’s messaging regarding job growth, which they’ll hope will turn negative in order for unemployment to go up, creates concern about occupancies and rent growth. The combination of the two is really disruptive to the valuation and the trading environment.”

Nadji noted that the current environment differs from the Great Financial Crisis because ample capital Is available.

“This is a liquid real estate recession, if you will, in that there’s liquidity,” Nadji told CNBC. “People have plenty of capital, and there’s big demand for the sector, unlike ’08, ’09 when we had an illiquid environment.”