What Stocks are Best to Invest in During a Recession?

When it comes to investing during a recession, there is no one-size-fits-all answer. Learn more about which sectors tend to do better than others during economic downturns.

What Stocks are Best to Invest in During a Recession?

When it comes to investing during a recession, there is no one-size-fits-all answer. Historically, some sectors such as consumer commodities, health care and public services have performed better than the overall market during recessions. Advisors also point out that securities stocks and commercial real estate are potentially advantageous investments during recessions. If you're worried about a deep and protracted recession, consider stocks like Merck (MRK (opens in new tab)), the pharmaceutical giant.

In addition, stocks like Merck and AbbVie, with high and reliable payments, offer good competition for bonds that many investors flee to in difficult times. Current investors or those who may be entering the market soon may be thinking of adding some recession-resistant stocks to their portfolios. If you have a reasonably diversified stock portfolio, it's likely that you lost approximately 20% of its value during the first six months of the year. Wells Fargo analysts said in a recent report that investors should “favor a full and weighted allocation of basic consumer and utility stocks in the market” because of their “traditional resilience” in a slowing economy.

Because of the unique economic shock presented by the COVID-19 pandemic and the blockages related to public health, companies that perform well in the current environment will be somewhat different from a typical recession. With stocks falling in a bear market this year, fearing that aggressive Federal Reserve rate hikes will plunge the economy into an imminent recession, major Wall Street firms are advising investors to stick with stocks that have historically performed well over the past few years during recessions, such as those in consumer and healthcare companies. Therefore, my recommendation is that investors strive to achieve a balance between traditional defensive actions and exceptionally growing companies that have taken a big hit. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell stocks, securities, or other particular investments.

A final reminder is that stocks and industries that are doing well during a recession may not always perform well when the economy recovers. The only downside of the Price fund is that its portfolio is full of stocks whose dividends may be growing but are small, including Apple (AAPL (opens in a new tab)), with a yield of 0.6%. A sharp decline in the stock market is usually an indicator of an impending recession, that is, a temporary period of economic decline. But it would be difficult to find a financial expert who would claim that there are completely recession-proof stocks.

While personal vacation travel decreases during recessions, there is still a need to move products to store shelves. However, looking at which stocks performed well can still show general patterns as to what types of stocks could perform better in economic recessions. When it comes to investing during an economic downturn, it's important to understand which sectors tend to do better than others. Consumer staples such as food and beverage companies like Procter & Gamble (PFE), Johnson & Johnson (NJ), Kraft Heinz Co., and utilities are often seen as safe havens for investors looking for stability during turbulent times. Healthcare companies like Merck (MRK) and AbbVie also tend to do well during recessions due to their high dividend payments and reliable cash flows.

Additionally, commercial real estate can be an attractive investment option as it tends to hold its value better than other asset classes. It's also important to remember that while certain sectors may do better than others during recessions, there is no guarantee that any particular stock will outperform the market. As such, it's important for investors to diversify their portfolios across different sectors and asset classes in order to mitigate risk. Finally, it's important to remember that while certain stocks may do well during recessions, they may not necessarily perform as well when the economy recovers. As such, investors should be mindful of their long-term goals when making investment decisions.

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