With just months to go until the presidential election, a long list of economic issues is top of mind for many investors: Inflation (which remains elevated), rapidly rising interest rates, a struggling housing market, and uncertainty about when the Federal Reserve will cut interest rates — any of these could lead to difficult investment decisions.
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It’s true that the stock markets are doing well, 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 it remains to be seen whether this trend will continue.
Against this backdrop, here are some types of investments that, according to experts, could see a steep drop before the end of the year.
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Investing in industries that depend on consumer spending
According to Michael Collins, CFA, founder and CEO of WinCap Financial, industries that rely heavily on consumer spending, such as travel and leisure, may face challenges heading into the end of the year as geopolitical tensions and unexpected global events, as well as the possibility that inflation may continue to erode consumer purchasing power.
“For example, the current conflict between Israel and Gaza may create feelings of uncertainty and fear among travelers, dissuading them from visiting certain destinations,” he said. “Furthermore, inflation may also reduce domestic travel in the U.S., with the cost of a family trip to Disney potentially being nearly double what it was just a decade ago.”
Real Estate Stocks and Real Estate Investment Trusts (REITs)
Robert Hodges, fund manager of the Sand Hill Road Technologies fund, said a variety of economic and market factors are expected to cause certain types of investments to fall significantly in value by the end of 2024, with investments focused on industrial facilities and data centers in particular expected to underperform as interest rates remain high.
These include real estate stocks as well as REITs, which are essentially mutual funds that buy real estate rather than stocks, according to Hodges.
“Real estate prices have risen to unsustainable levels in some areas,” Hodges said. “Rising interest rates and a slowing economy could cause real estate values ​​in these markets to fall.”
Non-AI Technology Stocks
Hodges noted that while AI-focused companies are thriving, other big tech stocks may face challenges due to high valuations and economic uncertainty.
“Some tech stocks have reached unsustainable levels and if earnings miss expectations or there’s a broader market correction, these stocks could fall sharply,” he said.
U.S. Treasury
Hodges said that as interest rates rise, Treasury yields rise, making the bonds less attractive and potentially reducing their value.
“High-yield bonds issued by companies with lower credit ratings are riskier,” Hodges added. “An economic downturn increases the risk of these companies defaulting on their debt, leading to lower bond prices.”
Commercial Real Estate and Regional Banking
Commercial real estate is not likely to fare better because “the effects of COVID are lingering and many people have not returned to an office environment,” according to Marcus Levin, co-founder of XYO Network.
Consequently, this will have an impact on the banking industry, he said.
“So I think regional banks that have stronger ties to commercial real estate are probably not going to fare as well,” he said. “I don’t think government bonds are going to perform as well either because they have so much debt.”
He added that high debt levels across the board will push bond yields higher and, conversely, lead to a structural decline in bond values.
Veda co-founder Sunand Raghupathi agreed, saying that in a world where the broader macroeconomic environment is shifting from tight central bank monetary policy to much easier monetary policy, interest rates are expected to fall and over-held assets could perform even worse in such an environment.
“Commercial real estate comes to mind here, and there is currently an oversupply situation due to the work-from-home trend,” Raghupathi says. “So we think valuations of city center office buildings will continue to fall.”
Cryptocurrencies and speculative stocks
As WinCap’s Collins noted, market volatility and overall investor sentiment could lead to a selloff in riskier assets like cryptocurrencies and speculative stocks by the end of the year.
“This volatility is due to multiple factors, one of which is that cryptocurrencies are decentralized and not tied to a government or central authority, which means their value can suddenly change based on market sentiment and speculation,” he said. “In addition to this, the cryptocurrency market lacks regulation and oversight, which means prices can fluctuate wildly without any outside intervention.”
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This article originally appeared on GOBankingRates.com: 6 Types of Investments Set to Plummet in Value by the End of 2024
