Why experts choose these stocks during the economic turmoil

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Topline

As stocks fall into a bear market this year amid fears that aggressive rate hikes by the Federal Reserve could push the economy into a looming recession, major Wall Street firms are advising investors to steer clear. stick to stocks that have historically performed well in past downturns, such as consumer and healthcare companies.

Highlights

Experts are increasingly warning that a recession seems ‘inevitable’ as the Federal Reserve scrambles to tackle soaring inflation by raising interest rates at the fastest pace in 28 years, with a 75 basis point increase announced earlier this week.

Big Wall Street firms are now advising clients to ride out the downturn by buying defensive stocks with stable margins, stable cash flows and strong dividends, especially in sectors such as utilities and consumer foods. basic.

History shows that in past recessions, consumer and healthcare stocks have tended to outperform while the rest of the market struggles: in the past four recessions since 1990, they were the only two positive sectors in the S&P 500, according to CFRA Research.

The steepest declines in the market typically come from the “most economically sensitive groups,” such as airlines, automakers, hotels and casinos, says Sam Stovall, chief investment strategist at CFRA Research.

Looking at specific sub-industries, home improvement retail stocks like Home Depot were the best performers, while others performed well including footwear companies like Nike, computer companies like Accenture and brewers like Boston Beer Co.

Several other large companies have posted positive returns on average over the past three recessions, including McDonald’s, Walmart, General Mills, JM Smucker Co., Chesapeake Utilities and National Beverage Corp., according to FactSet data.

Crucial quote:

Wells Fargo analysts said in a recent report that investors should “favor a comprehensive, market-weighted allocation” to consumer staples and utilities stocks thanks to their “traditional resilience in a slowing economy.” The company specifically expects food staples – retailers like Coca-Cola, General Mills and Kraft Heinz – to benefit from an “increasingly value-conscious consumer”.

Tangent

Experts also like energy stocks, which have been the best performing sector of the market this year thanks to soaring oil prices since Russia invaded Ukraine in late February. As oil and gas prices have risen further in recent weeks, companies like Chevron and Occidental Petroleum, both favorites of billionaire investor Warren Buffett, could see their stocks continue to climb.

To monitor

“While rising interest rates should continue to provide a tailwind for value stocks,” which have outperformed this year, “the data also supports a positive outlook for growth stocks,” said Brad McMillan, managing director. investments for Commonwealth Financial Network. Amid recent market declines, some growth sectors such as technology and consumer discretionary have become “more attractive”.

Further reading

Stocks are on course for the worst week since March 2020 amid “deafening” recession-related worries (Forbes)

Dow plunges 700 points as Fed rally evaporates amid fears a recession is ‘inevitable’ (Forbes)

Here’s how markets reacted the last time the Fed raised rates by 75 basis points (Forbes)

How does the market work during an economic recession? You might be surprised (Forbes)

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