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A recession seems imminent; what areas of the stock market bode well?

Updated: May 16, 2022

The probability of a recession in the United States within the next year or two is continuing to rise. The enduring war in Ukraine, surging inflation, and the inevitable climb in interest rates are cultivating a perfect storm for the U.S and global economy. These discomforting factors are hitting the stock market hard, so many are wondering what the best strategies are in the stock market to mitigate the risk for extreme loss of wealth. Some say cash is king during these times since most of this is unprecedented, some say buying treasury bonds are the move to obtain risk-free interest payments from the government with higher interest rates. These may be solid options for those that are very risk averse, but how about those that would like to stay in equities and keep their money in the stock market? There are certain industries that have historically posed fairly well during economic hardship. These value-based industries may not have the exponential growth as the top companies in Silicon Valley, but they do provide a stable investment during unstable economic conditions:

Consumer Staples: The name of this sector comes from the fact that the companies in this group provide products that are “stapled” in society and consumers’ minds. Think of food, drugs, alcohol, and tobacco companies. They are the essentials to survive and the vices that people may turn to even more during down times. Regardless of why these are stapled in society, the consumer demand will not falter like most industries even in the harshest of economic times.

Discount Retailers: The top discount retailers become more of an everyday stop for those looking to cut back on their routine purchases. If you lost your job and money is tight, will you continue to shop at Nordstrom or Lululemon, or will you turn to TJ Max and Marshall’s? What about for your everyday snacks and accessories; will you go to Wegman’s or continue your prime membership with Amazon, or will you turn towards the Dollar Tree and Dollar General? These are easy questions for the everyday American, so they should be easy answers for investors.

Death and Funeral Services: Our last example that we will delve into is a little morbid, but one of the most reliable business models with recurring revenue. Given the fact that you cannot save the cost of death even in the direst economic times, this is a stable investment that will not be impacted as bad as other areas during an economic downturn. Companies such as SCI, Service Corporation International could be a good choice to protect your assets in a recessionary environment.

Although these sectors bode well relative to the rest of the economy during hard times, it doesn’t mean they will be successful investments. People will most likely still spend less at TJ Max, the Dollar Tree, and SCI. We are only saying that, historically, these are areas that can be a little more reliable than the high growth or luxury/discretionary companies.

Disclaimer: We do not offer professional financial advice, only commentary on what we have seen in the market and where we think the market can head.

Note: All investments have the potential to lose significant value, please use caution when seeking investment opportunities.

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