With many of this week’s financial headlines celebrating the recent positive performance of stocks, many of us are left wondering: What comes next, and will we be ready when it arrives?
That includes reporters and market analysts. While we don’t always find them on the “front page” of our favorite financial news websites, stories are being written exploring some of the major risk factors currently faced by financial markets, including two that may soon spell trouble for both the economy and consumers: inflation and commercial real estate.
Inflation is still higher than expected.
While inflation has fallen somewhat from its recent historic high, it remains elevated—meaning prices are still going up and your dollars continue to lose their purchasing power. In fact, two recent measures suggest that inflation is accelerating faster than hoped: the Consumer Price Index (CPI) and the Producer Price Index (PPI).
Bureau of Labor Statistics data released on February 13, 2024, show that the CPI was growing at a pace of 3.1% in January 2024, higher than the 2.9% estimate previously provided by economists. Similarly, the PPI in January grew by 0.9%, higher than the expected 0.7%.
With high prices still eating away at our wallets, the effects of inflation cannot be discounted.
The commercial real estate market is another growing threat to our economy.
Unused commercial real estate, as well as the loans underpinning them, are becoming an increasingly large burden on banks’ balance sheets. According to data from analytics firm CRED iQ, the number of commercial mortgages under “distress” increased 440% from February 2023 to February 2024.
The sector in which we may see the greatest impact from this potential crisis is the regional banking system, which experienced a series of notable shocks last year that led to multiple closures and buyouts. According to Fortune, regional banks hold more than two thirds of the outstanding commercial real estate debt on the market today. It remains to be seen if the multiple trillions of dollars in distressed loans on their balance sheets will lead to more trouble.
Acting now could be the best way to help insure your wealth.
Even if stocks appear to be going strong right now, we’re still seeing multiple areas of concern that could contribute to markets falling in the near future—and when markets begin to slip, there’s no telling how far they’ll fall.
If you’re like me and prefer to act rather than take a “wait and see” approach to protecting your hard-earned savings, now may be the time to explore your diversification options. By increasing the number of assets and asset classes in your portfolio, you can help reduce its overall risk exposure should markets fall. And historically, physical gold has been viewed as an effective hedge against market volatility—a form of wealth insurance that can help you protect what matters most.
But insurance only works if you own it before you need it. And with Citibank predicting that gold prices could soar to $3,000/oz. in the next 12 to 18 months, now may be the time to buy before prices rise to new all-time highs.
