Just mere months away from the presidential election, there is no shortage of economic issues that are top of mind for many investors: Inflation (which remains sticky), exploding rates, a difficult housing market and the uncertainty regarding when the Federal Reserve will cut rates can all lead to difficult investment decisions.
Sure, the stock market has been on a roll, with the S&P 500 up 17.8% year-to-date and the Nasdaq up 25.3% year-to-date (both as of July 10), but whether this will continue remains to be seen.
Against this backdrop, here are some types of investments that might plummet before the end of the year, according to experts.
Investments in Industries Dependent on Consumer Spending
Industries that are heavily dependent on consumer spending, such as travel and leisure, may face challenges toward the end of the year due to geopolitical tensions and unexpected global events, as well as the fact that consumers’ purchasing power could continue to decline due to inflation, according to Michael Collins, CFA, Founder and CEO, WinCap Financial.
“For example, the conflict occurring in Israel and Gaza right now could lead to a sense of uncertainty and fear among travelers, dissuading them from visiting certain destinations,” he said. “Additionally, travel within the United States could decline as well due to inflation, meaning the family trip to Disney could cost almost double what it did just 10 years ago.”
Real Estate Stocks and Real Estate Investment trusts (REITs)
Certain types of investments are expected to face significant declines in value before the end of 2024 due to various economic and market factors: especially those focused on industrial facilities and data centers, are expected to underperform due to persistent high interest rates, said Robert Hodges, Fund Manager at Sand Hill Road Technologies Fund.
According to Hodges, these include real estate stocks, as well as REITS — in essence, mutual funds that buy real estate instead of stocks.
“Real estate prices in some areas have surged to unsustainable levels,” said Hodges. “Rising interest rates or an economic slowdown could cause property values in these markets to drop.”
Non-AI Technology Stocks
Hodges noted that while AI-focused companies are thriving, other large-cap tech stocks may face challenges due to high valuation levels and economic uncertainties.
“Some tech stocks have reached unsustainable valuations. If earnings fall short of expectations or there is a broader market correction, these stocks could experience significant declines,” he said.
U.S. Bonds
According to Hodges, as U.S. Treasury bill yields rise with climbing interest rates, bonds could become less attractive, leading to a potential decrease in their value.
“Issued by companies with lower credit ratings, high-yield bonds are riskier,” added Hodges. “Economic downturns increase the default risk for these companies, leading to falling bond prices.”
Commercial Real Estate and Regional Banks
According to Markus Levin, co-founder of XYO Network, commercial real estate is not going to do well because of the “lingering hangover from Covid, with a lot of people not returning to an office environment.”
In turn, he said, this has repercussions on the banking sector.
“Therefore, I think the regional banks that are heavily tied to commercial real estate are probably not going to do so well,” he said. “I think government bonds are not going to perform well, either, because the debt is so high.”
With such high debt levels across the board, the yields on those bonds will be pushed upward and, conversely, the value of the bonds will be structurally pushed down, he added.
Sunand Raghupathi, co-founder of Veda, echoed the sentiment, saying that in a world in which the broader macroeconomic environment is shifting from one of central banks tightening to a much looser monetary policy, meaning that rates are poised to come down- assets that are overly abundant might perform even more poorly in this environment.
“What comes to mind here is commercial real estate, which is now in a situation of oversupply as a result of the work-from-home trend,” said Raghupathi. “I suspect, therefore, that we will continue to see pain in terms of valuations for office buildings in city centers.”
Cryptos and Speculative Stocks
As WinCap’s Collins noted, it is possible that high-risk assets such as cryptocurrencies and speculative stocks may see a decline by the end of the year due to market volatility and overall investor sentiment.
“This volatility is due to multiple factors, one factor being the fact that cryptos are decentralized and not tied to any government or central authority, which can lead to sudden changes in their value based on market sentiment and speculation,” he said. “In addition to this, the lack of regulations and oversight in the cryptocurrency market allows for large fluctuations in prices without any external intervention.”
More From GOBankingRates
Source link
