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Investors could be looking at a scary summer as analysts are expecting the S&P 500 stock index to experience a rapid correction as inflation persists. Analysts at wealth management firm Stifel predicted, in a note reported by Business Insider, that the stock market index could fall 4,750 points in the second or third quarter of 2024, a 10% fall from mid-May 2024.
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“We have been wary of a broad S&P 500 correction in the middle quarters of 2024,” the firm wrote in the note.
The firm went on to say that Federal Reserve interest rate cuts are not likely to happen, as the 2% target inflation the Fed was hoping for “is a pipe dream,” according to the note.
The reduced likelihood of interest rate cuts created a small market downturn in April as investors sold off stocks. In general, when interest rates rise, consumers and businesses cut back on spending. This causes stock prices to fall.
Amidst persistent inflation and consumer spending, however — including waves of post-pandemic “revenge spending” — the stock market has not seen significant dips, even with elevated interest rates.
Which investment sectors should you avoid if high interest rates persist through the summer and the next Federal Open Market Committee meeting?
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Real Estate Stocks Shocked
A recent report from Morningstar revealed that real estate stocks, as well as related investments, dropped this spring and could continue a downward spiral if high interest rates persist. The real estate sector retreated by 8.14% in April. Morningstar pointed to REITs focused on industrial facilities and data centers as two of the hardest hit sectors.
Similarly, Vanguard revealed that U.S.-based REITs show a return projection of just 4.1% to 6.1%, with a median volatility of 20.1%. This is high for a relatively low return.
Technology Stocks Down, Except For AI
Technology stocks, with the exception of AI-focused companies, underperformed this spring, Morningstar reported. Large-cap tech stocks, specifically, could fall.
“Stocks that have dominated the market in the past one year-plus may be reaching challenging valuation levels,” Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management, stated via USBank.com.
However, some tech companies, especially those with investments in AI technology, are poised to continue performing well.
“Large companies like Nvidia, Microsoft, Amazon and Google that hold a lot of cash and have low borrowing needs are not greatly affected by changes to the interest rate environment,” Haworth concluded.
U.S. Bonds Could Look Less Attractive
As U.S. Treasury bill yields rise with climbing interest rates, bonds experience the opposite. The U.S. fixed income market was designed to preserve capital, diversify risk and provide income. But elevated volatility makes bonds less attractive to some investors in today’s market, according to BlackRock.
The firm advised that it could be a good time to re-balance your portfolio with an eye on your long-term financial goals. After all, interest rates won’t stay elevated forever.
Additionally, the experts at Charles Schwab wrote, “If you intend to hold the bond to maturity, interest rate risk may be less of a concern for you as it’d be for someone who might need to sell the bond before it reaches maturity and may be forced to sell at a discount to par value, or below the bond’s initial purchase price.”
How To Weather an Impending Summer Storm
Prepare for opportunities this summer through investment strategies such as dollar-cost averaging, where you continue buying through the downturn.
You can also mitigate risk with a diversified portfolio focused on your objectives, according to BlackRock.
“Timing the market is always tricky,” Kendall Dilley, a chartered financial analyst with Vineyard Global Advisors, told U.S. News & World Report. “The popular adage is that time in the market beats timing the market almost every time. Investors who are worried about entry risk can utilize higher yields in Treasurys to diversify their portfolios.”
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This article originally appeared on GOBankingRates.com: 3 Types of Investments Predicted to Plummet in Value in Summer 2024
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