During a recession, stock prices tend to plummet. Markets can be volatile and stock prices fluctuate sharply. A sharp decline in the stock market is usually an indicator of an impending recession, that is, a temporary period of economic decline. With the S%26P 500 index falling by 1000 points, or about a fifth, from January to June, a consensus is emerging that a recession is coming, perhaps next year.
The current market crash should offer an excellent buying opportunity for anyone who has the patience to endure a few years. When looking for dividend-paying stocks or dividend-paying ETFs, it's important to keep in mind that performance shouldn't be the main determining factor, as higher returns tend to carry additional risk. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell stocks, securities, or other particular investments. If you're worried about a deep and protracted recession, consider stocks like Merck (MRK (opens in new tab)), the pharmaceutical giant.
So how do you identify those companies? One of the best places to start is to use a free stock evaluator. Despite continuing uncertainty in the markets, he sees no imminent recession thanks to strong GDP growth and earnings, as well as the moderation in inflation at the end of the year. But the anticipation of pain is often worse than the reality, and the stock market expects someone to simply take off the band-aid and declare a recession now. The stock has a price-benefit ratio, based on estimated earnings for next year, of 13 and yields 3.0%.
To find stocks that performed better this year, define the price and performance filter in your stock evaluator to show any value higher than the performance of last year's S%26P 500. Investing in funds allows you to be exposed to specific baskets of stock, rather than to a single investment (such as an individual stock). These funds emerged from the Great Recession bear market with a fall of 29% and 27%, respectively, while the S%26P 500 continued to fall by more than 50%. Of these, the average decline in the stock market was 34%, while severe recessions, such as those of 1973 and 2001, produced an average decline of around 43%.
And since the index has existed for 65 years, it gives us a way to see the performance of the stock market in most of the recessions following World War II.