- The Federal Reserve’s rate hike can have a negative effect on the market, and these are some stocks to sell before the hike hits.
- Tesla (TSLA): Overvaluation and cheaper EV competitors makes it a sell during an economic decline.
- Amazon (AMZN): Recent downturn is likely to continue due to decline in online shopping growth and consumer demand.
- Nvidia (NVDA): Improving chip shortage, overvaluation and slowing consumer spending can hurt the company’s revenue.
- Boston Properties (BXP): Poor performance during recessions and housing market volatility makes the stock risky.
- Vici Properties (VICI): Poor performance of the casino industry during recessions can take a toll on the stock.
- Lennar Corporation (LEN): The home construction industry won’t fare well during an economic downturn.
- Exxon Mobil (XOM): No significant signs of a strong uptrend since 2008, and stagnant highs makes it a sell.
Tomorrow, the Federal Reserve’s meeting will likely see a half-percentage-point hike being approved, as hinted by the Fed Chair Jerome Powell. The meeting on this hike will start on May 3 and conclude the next day. It is expected that the Federal Open Market Committee (FOMC) policymakers could raise interest rates by as much as 75 basis points.
Stocks have already fallen in anticipation of the hike as higher interest rates will hurt the market. Moreover, the Fed plans even more aggressive rate hikes going into the future as inflation is still significantly above target.
The economy as a whole does not seem to be well right now. The U.S Gross Domestic Product (GDP) declined by an annual rate of 1.4% this quarter. With the Fed’s fight against inflation, it is likely to decline even more.
Therefore, I have found seven stocks to sell since they are likely to perform poorly after the hike. They are as follows:
Tesla (NASDAQ:TSLA) is a likely sell in the current market situation. The stock is significantly overvalued, and Elon Musk’s antics aren’t going to do it any more favors. In the case of a recession, investors are likely to liquidate their positions on TSLA. Moreover, the company will not do well in an economic downturn as consumers will prefer to buy cheaper electric vehicles (EVs).
That could already be the case as Tesla has been losing its EV market shares for quite some time. Moreover, an economic decline has historically been met with a sharp fall in gas prices. If a similar situation occurs today, it could further remove the incentive to buy Tesla’s expensive EVs.
In addition, Tesla’s first quarter robust performance failed to excite investors as the 80.5% year-over-year (YOY) revenue growth is not sustainable amidst an economic downturn and supply problems.
Of course, TSLA can still perform if the market does not react as negatively to the hike. However, I believe that it is always better to be safe.
Amazon (NASDAQ:AMZN) is down over 33% since July last year. However, its large market capitalization still leaves more room for decline.
The company had explosive growth in 2021, driven by high consumer demand, significant growth in online shopping, and stimulus packages. In 2022, Amazon will have none of those attributes to capitalize on.
In addition, the comapny’s Q1 results of this year have already been quite disappointing. Amazon reported a $3.8 billion net loss this quarter compared to $8.1 billion in net profit in the same quarter last year. Moreover, Amazon’s earnings per share (EPS) loss of $7.56 is a significant miss compared to an expected $8.36 profit.
There is also a slowdown in consumer spending, which will be problematic for Amazon once it enters negative territory. Following the Fed’s monetary policies, it isn’t very likely that consumers will continue to keep spending during an economic downturn. Thus, In my opinion, AMZN is a sell for the short term.
A severe chip shortage and high consumer spending came as a post-pandemic blessing for Nvidia (NASDAQ:NVDA). However, the chip shortage has improved, and the slowdown in consumer spending could damage the company’s revenue.
Nvidia has been in a decline of 42% since November last year. Nonetheless, Nvidia is still significantly overvalued, with a $468 billion market capitalization and a $27 billion annual revenue. Additionally, the prospect of a disappointing Q1 result can make it even riskier.
Nvidia could be hit particularly hard in the worst-case scenario as expensive consoles and GPUs aren’t products consumers will prioritize buying while in hardship. Altogether, this puts it high on the list of stocks to sell if the rate hike hits the economy hard.
Boston Properties (BXP)
Boston Properties (NYSE:BXP) has performed quite poorly during economic downturns. The stock declined over 70% during the Great Recession, and it took the company more than seven years to recover. Similarly, the stock crashed by over 50% during the Covid-19 crash, and it has yet to recover.
Moreover, the company was declining for four straight quarters before turning green due to the housing boom. In addition, the price-to-earnings (P/E) ratio of 37.34 does not scream a buy for this stock.
Boston Properties will be releasing its first-quarter results of this year today. Therefore, it is challenging to say where the stock will be going in the short term. However, if economic difficulties are to persist, BXP is certainly a sell.
Vici Properties (VICI)
Vici Properties (NYSE:VICI) is another real estate company that could take a substantial hit if the housing market declines. Casinos are not recession-proof, and they are among the hardest hit when challenged by economic volatility.
Vici is less likely to be affected by rate hikes due to its debt being tied to fixed-rate notes. However, Vici won’t be shielded from decline forever. The company’s significant state in the casino industry and real estate assets can still drag it down along with the rest of the market.
However, I still believe that Vici has excellent long-term prospects. Yet, this is not the time to buy or hold the stock. Even with high inflation, it is better to be patient in the current market. The 8.5% annual inflation rate does not justify holding high-risk real estate stocks such as VICI.
Lennar Corporation (LEN)
Lennar Corporation (NYSE:LEN) is a home construction company that has performed poorly during previous economic downturns. During the Great Recession, the stock declined over 95% from its 2005 peak, and the company took ten years to recover to its previous high, albeit briefly.
It is almost a given that the housing market will undoubtedly decline. The housing market has boomed off of low-interest rates and is now entering a period of volatility and instability. Whether or not the real estate market will crash like in 2008 is still debated. However, it is better to be safe than sorry.
Additionally, the home construction industry does not fare well during economic decline. Therefore, judging by the stock’s underperformance and the home construction industry’s vulnerability, I consider LEN to be a sell.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) has minimal upside potential. The stock has lagged behind the rest of the market and has remained stagnant since 2008.
XOM has likely reached its peak before it starts to decline again due to the current macroeconomic trends. In addition, the shift to clean energy will have a long-term drag on the stock nonetheless.
Exxon’s boom from rising oil prices won’t last soon in the face of a recession. Historically speaking, energy prices have consistently plunged during economic decline, and Exxon is likely to be hit.
Therefore, due to Exxon’s negligible upside potential and significant potential for a decline, I consider XOM stock to be a sell.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.