The S&P 500 Futures (INDEXSP: .INX) are down 9 points this morning, signally a lower open. Investors are on edge because of a 2nd coronavirus breakout. Some market analysts are saying the market will take another plunge causing us to fall into a recession or depression.
When stocks are bullish (rising up), it is pretty easy for most people to make money on Wall Street. In fact, studies have any shown that in bull markets, novices did just as well as pros when it came to finding stocks. However, market veterans will tell you the real test comes when the BULLS start taking control.
Those who can make money when the market is down will gain the respect of even the most seasoned investors. Being successful requires a lot of patience, research, and discipline.
If you are looking for some recession stocks, here are some of our picks:
Picking the right stock for the economic climate is not impossible, however. One way to get a handle on which stocks will perform best during a bear market is to look at the overall picture of how the stock market behaves. Usually, bull markets are periods that also see a strong manufacturing sector. Houses are built, cars are manufactured, and goods like appliances and clothes fly off the shelves. The companies that make and sell those consumer products do well, and those who buy their stock to share in that success drive stock prices higher. But when the party is over and inflation kicks in, we begin to budget our money. Sales volume declines, and many factory workers find themselves out of work as consumer demand slackens. As wages stagnate, so do purchases of high priced items like cars and homes, and this helps to accelerate the decline of the stock market.
But those who buy stocks that perform well even in this kind of economic recession – the stocks known as “recession-proof” stocks – can usually do relatively well, even during sluggish bear markets. Which stocks continue to reward shareholders in a recession? Generally speaking, those that are tied to fundamental basic necessities of life. We may not buy designer jeans and sports cars during a bear market, but we still buy heating oil and we still use electricity to light our offices and homes. So utility company stocks generally fare well during bear markets, as do companies that sell other basic commodities like gasoline. Gold and silver and other precious metals are also a good choice for a difficult stock market season because when people are nervous about the future of the economy, they tend to invest in things of universal value, like gold. It provides a sense of security because if all else fails to attract consumers, gold will still glitter and be considered an item of special value and significance. And if you buy gold before the bear market sets in, you can probably sell it for a profit once the demand for it increases.
In summary, stocks that provide a sense of stability and security through ownership of those basic necessities of life are usually a good place to invest during a bear market. And buying stocks whose prices have fallen to bargain-basement prices is also a smart strategy. Many perfectly good stocks with underlying value and strong earnings get dumped when people pull their investments away from the stock market en masse. Those who are patient can buy these at wholesale or below wholesale prices, and then watch their purchases rise in value once others realize that these stocks are good buys. When the stock market begins to climb again, those stocks that are undervalued will rise quickly and you will be left holding winners that you bought at deeply discounted prices.
Tom, aka T Rex, is seasoned financial pro that cut his teeth on the Chicago trading oil futures in 1995. He has bachelor’s degree in finance and management. In less than 3 years he bought his own seat and set up shop on the exchange. For the next 10 years Rex traded his own account and some institutional accounts. In 2017, he decided to move to Florida and focus on educating traders and writing for financial websites.