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Are We Facing a Recession?

By 
Austin Ortiz

Wednesday, July 13th, at 8:30 a.m, the consumer price index was released to the public. The consumer price index reported on July 13th totaled to 9.1%, a 0.3% increase month over month. Economist’s forecasts remain negative, as increases in consumer goods, commodity prices, and supply chain issues continue to cause detriment across all markets. These underlying issues, along with the possibility of continued rate hikes by the Federal Reserve, are projected to have an impact on earnings for a majority of companies in the United States and globally.

The S&P 500 Futures closed today’s session at 3,961.63, down 37.32 points from open. As investors shed risk pending the uncertainty of the upcoming earnings season, along with the likelihood of additional interest rate hikes from the Federal Reserve, the futures market may continue to take a downturn.

A recession may have a stronger impact on companies within the technology, financial, and industrial sectors, but there are still ways to defend your capital in a recessionary market.

Investment Ideas for a Recessionary Market

As investors fear that a recession is ahead, here are some sectors that tend to perform better in a recessionary market:

Consumer Defensive Equities

Consumer defensive equities are companies that specialize in the manufacturing of food, beverages, household items, packaging, and habitual goods. Some noteworthy equities within this sector are The Coca-Cola Company (NYSE: KO), The Proctor andGamble Company (NYSE: PG), CostCo Wholesale Corporation (NYSE: COST), and Dollar Tree,Inc (NYSE: DLTR). An exchange traded fund for consumer defensive equities is listed with the ticker symbol “XLP” (NYSE: XLP). These companies typically perform better in bear markets because they sell products that are continuously in demand. As prices increase for consumer staple goods, these companies are less likely to see a sizable decrease in sales. Furthermore, staple equities tend to distribute dividends even during periods of high inflation or a recession, making consumer defensive equities an attractive investment.

Healthcare Equities

Healthcare equities are companies that specialize in the development and manufacturing of medical equipment, provide medical services, or provide health insurance.Companies such as Johnson & Johnson (NYSE: JNJ), UnitedHealth Group Incorporated (NYSE:UNH), and Beckton, Dickenson, and Company (NYSE: BDX), all belong to the healthcare sector.An exchange traded fund that holds companies in the healthcare sector goes by ticker symbol“XLV” (NYSE: XLV). Healthcare is a necessity for individuals across the world. Regardless of the economic impact on income, individuals still need adequate healthcare to overcome illnesses and injuries. In the previous recessions, the healthcare sector outperformed most other sectors and market indices. Healthcare stocks typically distribute dividends regardless of the economic scenario. Healthcare equities are a smart investment in times of a recession.

Utilities Equities

Utilities equities are companies that engage in the distribution and provision of electric power, water, natural gas, and sewage removal. Companies in the utilities sector include Dominion Energy, Inc. (NYSE: D), NextEra Energy, Inc. (NYSE: NEE), and CenterPointEnergy Inc. (NYSE: CNP). An exchange traded fund that holds companies in the utilities industry goes by the ticker symbol “XLU” (NYSE: XLU). In times of economic hardship, utilities maintain most of their revenue because they are a necessity for most households and demand is not hindered. In past recessions, companies in the utilities industry tended to maintain positive earnings. As the probability of a recession increases, utilities equities are a good investment since they will be less affected by an economic downturn.

With the looming possibility of a recession ahead, it is important to be defensive with your investments and diversify your portfolio. Staying prepared and defending your capital can help you move towards achieving your financial goals.

Learn more at Alinea Invest.

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