Stocks to sell

Avoid These 3 Blue-Chip Traps Amidst High Interest Rate Fears

United States equities have been quite mixed in Q2. The S&P 500 has fallen 3.7% and the tech-heavy Nasdaq 1.2%. The Dow Jones Industrial is performing the worst of the other indices. The index that tracks many blue-chip stocks has dropped more than 5% for the quarter and is only up 0.12% on a year-to-date perspective, guiding us towards some obvious blue-chip stocks to avoid.

Speculation on where interest rates and inflation will land has probably caused a lot of volatility for blue-chip stocks, especially those that have capex-heavy businesses or focus on consumer end-markets. For the March consumer price index (CPI) report, economists and market analysts had expected there to be a downtick in the core CPI figures for March, but instead, there was a month-to-month increase of 0.4% while the Y/Y rate for the core CPI remained at 3.8%. In other words, inflation seems here to stay for some time, which casts doubt on any Q2 rate cut that some analysts were hoping for. In fact, interest rates may have to go up another time to get inflation sufficiently under control.

If inflation remains sticky and interest rates remain elevated where they are, these are some of the blue-chip stocks to avoid.

Boeing (BA)

Source: Marco Menezes / Shutterstock.com

If you’re a retail investor who’s still holding Boeing (NYSE:BA), it’s time to accept that its one of the blue-chip stocks to avoid. At this point, the aircraft manufacturer has been through a number of controversies and crises of confidence that should keep many investors away. Despite the decades that the company spent developing itself into a leading manufacturer of commercial and military aircraft, satellites and rockets, Boeing’s 737-MAX has been a manufacturing tragedy. There were two fatal crashes of its 737 MAX jet in 2019 and 2020 due automated flight software misreading sensors and pushing the planes into a nosedive.

Most recently, the emergency exit door bolts of a 737-MAX owned by Alaska Airlines flew off mid-flight, causing a depressurization event. While no one was seriously harmed, Boeing’s reputation certainly was. The Federal Aviation Administration, in turn, halted the expansion of 737-MAX manufacturing.

United Airlines (NASDAQ:UAL) is under regulatory scrutiny after a number of near catastrophes on its Boeing planes. Moreover, Korean Air and Japan Airlines (OTCMKTS:JAPSY), both of which tend to be loyal Boeing customers, have recently signed major deals with Airbus (OTCMKTS:EADSY), a major blowback for Boeing.

Higher interest rates when Boeing will need to better scrutinize its manufacturing processes, could lead to higher capex costs and lower net margins for the company.

These delays and manufacturing inadequacies have, of course, blighted Boeing’s share performance. The aircraft manufacturer’s stock is down more than 35% for the year, and investors are perhaps better off selling now before things get worse.

General Motors (GM)

Source: Jonathan Weiss / Shutterstock.com

In contrast, General Motors (NYSE:GM), a legacy automaker, has been one of the most aggressive players in the electric vehicle space, aiming to sell more than 1 million EVs annually by 2025 and achieve an all-electric portfolio by 2035. The legacy automaker has increased its exposure to battery development boasting its own battery platform called Ultium, which can power a variety of EV models with different sizes, shapes, and performance levels.

The U.S. automaker’s wide variety of EVs could allow it to be a formidable contender in the burgeoning market. However, the electric vehicle market has experienced slowing growth over the past few months. GM hasn’t been immune to the broader market slump. EV manufacturers will be amongst the hardest hit if interest rates to come down soon. Most consumers in the U.S. purchase vehicles with car notes, and of course these loans have become more expensive, disincentivizing people from purchasing new vehicles.

GM shares are up 19% for the year but have fallen nearly 6% for the quarter.

Apple (AAPL)

Source: Moab Republic / Shutterstock

The renowned iPhone maker, Apple (NASDAQ:AAPL), has seen its share price slump in 2024. Currently, Apple’s stock has fallen more than 10% since the start of the year. This puts the iPhone maker at odds with some many other Big Tech stocks that have enjoyed this year’s broad rally.

The company’s fourth-quarter report for 2023 saw revenue decline by 1% year over year. Subsequent sales declines will likely occur. The iPhone-maker’s end-markets are oversaturated, and the company has no clear diversification strategy. Moreover, with China’s Huawei back in the mix, Apple is facing intense competition in its largest overseas market.

While the global handset market rebounded in the first quarter of 2024, Apple’s shipments declined by 10% Y/Y, while Chinese counterparts like Xiaomi saw a 33% Y/Y increase. Now, Korean conglomerate Samsung holds the largest market share in the handset market. As interest rates remain elevated, consumers will probably continue to think twice about getting new consumer electronics, especially as rates weigh on people’s budgets.

On the date of publication, Tyrik Torres 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.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

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