How to Invest During a Recession – Main talking points:
- A recession is typically accompanied by falling stock prices, but equities are not the be-all and end-all for recession investment strategies
- To be sure, certain sectors of the stock market can still increase in value during a recession
- However, the currency and commodity markets can create positive returns and provide diversification as the economy slows and risks mount
As the current global growth outlook becomes increasingly uncertain, traders and investors have voiced concern over the possibility of a looming recession – a worrisome prospect for global equity markets. Technically defined as two successive quarters of negative GDP growth, recessions are a period when an economy contracts and company profits slip. Consequently, stock valuations are frequently adjusted lower and producing a positive return in an equity-heavy portfolio becomes a tedious task.
What Are Some of the Best Investments During a Recession?
1. Equity Market: Stocks to Watch During a Recession
Under expansionary circumstances, stocks that have strong growth prospects for the future typically command lofty valuations and produce high returns as investors bank on the company’s ability to generate more income as time progresses. This phenomenon typically results in high price to earnings (P/E) ratios like those currently present in some of the market-leading tech stocks. In the event of an economic downturn, however, these profit-hopeful stocks are often discarded as investors align their income assumptions with slowing growth and lower consumer spending.
“Recessionary periods” defined as nearest stock market peak prior to recession to end of technical recession
On the other hand, stocks with stable – but often more modest – income generation tend to be more insulated from dramatic stock shocks that frequently accompany recessionary periods. These stocks are known as “defensives” and, broadly speaking, include
