Areas that will benefit the most
Bond Holders - Bonds tend to appreciate in a falling rate environment as yields drop and prices rise. We have already seen some bond appreciation in anticipation of fed cuts in the market and new fund flows.* *LPL Blog, August 2024 Fund Flows Recap
Sectors and Industries with high levels of debt will receive some respite, and their valuations will be re-rated. The industries most impacted include Utilities, Real Estate Companies, and Small Businesses.
Still to play out
Stocks - Stock investments historically have had positive returns, unless there is a decline in the economy. Presently, the prevailing situation suggests a gradual economic slowdown, which would be benefit for stocks. However, it is important to monitor this situation closely.
Residential Real Estate - A decrease in mortgage rates is expected to boost sales activity, leading to increased clarity on property values and may vary across geographies.
Variable rate debt (Credit Card, HELOC, Variable Rate mortgages) - These rates will come down, but the amount of relief will depend on the amount and timing of rate cuts and typically take time to filter through to consumers.
Most affected areas
Returns on Cash, Money Market, and CDs are reduced with rate cuts, leading investors to explore other investment opportunities for their funds. The significant inflows into Money Markets in recent years could have a substantial effect on other securities if withdrawn and reinvested elsewhere.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
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