With the stock market in a bear market this year, investors are looking for stocks that have historically performed well during recessions. Wells Fargo analysts suggest that investors should “favor a full and weighted allocation of basic consumer and utility stocks in the market” due to their “traditional resilience” in a slowing economy. To create a diversified portfolio, it is important to invest in companies from various sectors, including those that are recession-resistant. My theory is that these stocks are already trading for a severe recession and could hit bottom before the rest.
The key to finding stocks that will perform well during a recession is to look for those with strong financials and price-benefit ratios. Pfizer (PFE), Johnson & Johnson (NJ), and Kraft Heinz Co. are all examples of stocks that have done well during recessions. Cyclical stocks (companies in sectors that are very sensitive to the economic cycle) tend to be the most affected during a recession, so it is important to diversify your portfolio with defensive or countercyclical actions in the consumer commodities, public services, bargain retail, and health care industries.
Additionally, securities stocks and commercial real estate are potentially advantageous investments during recessions. It is important to remember that stocks and industries that do well during a recession may not always perform well when the economy recovers. Therefore, investors should strive to achieve a balance between traditional defensive actions and exceptionally growing companies that have taken a big hit. By investing in companies related to megatrends such as 5G, streaming services, cloud computing, and social media, investors can create a portfolio that leans towards growth-focused sectors while still being able to withstand an economic downturn.
A sharp decline in the stock market is usually an indicator of an impending recession, so it is important for investors to be aware of the signs of an economic downturn and be prepared with a diversified portfolio of stocks that have historically done well during recessions.