Following a long period of heightened anticipation, interest rates have finally dropped — and they could keep dropping. According to some experts, rates could drop to the mid-5% range or even the high 4s by the end of 2024.
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Now that interest rates have fallen, both new and seasoned investors may be wondering what assets they should invest in. GOBankingRates spoke with financial experts to learn about several intriguing options.
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High-Performing Tech Stocks
Because lower interest rates make it cheaper for companies to garner funding, tech companies of significant stature can invest more in growth and in turn, elevate the value of their stock.
“Take NVIDIA, for example,” said Nick Scibilia, CEO and co-founder of Orbit, a financial platform designed for the new generation of American investors. “With lower borrowing costs, it can accelerate its innovation in AI.”
Scibilia said that Apple and Microsoft, in particular, stand to benefit from a low-interest rate environment.
“Apple can invest in product development or even buy back more shares, which can boost stock prices, while Microsoft might expand its cloud services or other innovations in AI,” Scibilia said. “When interest rates drop, the cost of doing business drops too, which can lead to higher profits and stock growth.”
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Infrastructure Development
Infrastructure development is becoming a more popular investment, thanks in part to a governmental shift toward renewable energy.
“On top of that, as industries continue to digitalize, there’s an increasing need for reliable data infrastructure — like data centers and cloud services, which are critical for supporting technologies like AI and cloud computing.”
In a time of falling interest rates, infrastructure investments become even more appealing.
“With lower borrowing costs, governments and companies can finally launch big projects that had been delayed due to high financing costs,” Scibilia said. “Experts expect stabilization and growth in the infrastructure sector. It’s not only about stability but also about being part of the global transition to more sustainable and tech-driven solutions. Investing in infrastructure now offers a solid chance to be on the frontlines.”
Bonds (Especially If You Already Own Them)
If you invested in bonds that were issued when interest rates were higher, you’ll find that they suddenly offer better returns at a lower interest rate — and better than returns you’d reap from newly issued bonds.
“This is because new bonds will have lower interest rates that reflect the current market, while existing bonds continue paying out at their original, higher rates,” Scibilia said. “As a result, the prices of these older, higher-yielding bonds often increase, making them a great opportunity for investors looking to lock in those better returns.”
If you have reason to believe that interest rates will continue to drop, bonds become even better investments.
“Bond prices typically rise as interest rates fall, so holding bonds during a period of rate cuts can lead to price appreciation,” Scibilia said. “Short-term corporate bond funds are especially popular in this environment because they provide solid yields without requiring a long-term commitment. For those who prefer a stable and relatively low-risk investment, bonds are definitely a great way to secure steady returns.”
Small-Cap Stocks
Interest rate cuts have historically served as a catalyst for small-cap stocks.
“Gerald Jensen of Creighton University, Luis Garcia-Feijoo of Florida Atlantic University and I studied the performance of stocks with respect to different Federal Reserve interest rate environments,” said Robert R. Johnson, professor of finance at Heider College of Business, Creighton University.
He continued, “Small stocks outperform large stocks in a falling rate environment,” adding that investors may want to take a look at Russell 2000 index funds. “The largest quintile of stocks returned 15.6% while the smallest quintile of stocks returned 30.1%.”
Real Estate
When interest rates dip, mortgages become more affordable, making for a prime opportunity to invest in real estate.
“Mortgage rates tend to drop after rate cuts, which can make it easier for people to get approved for loans and afford monthly payments,” Scibilia said. “It could also lead to an increase in the number of homes available on the market, since current homeowners might feel more comfortable selling and upgrading.”
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This article originally appeared on GOBankingRates.com: 5 Things To Invest In as Interest Rates Fall
