Triston Martin
Jan 12, 2023
The recessionary spiral of the American economy continues apace. We looked to the past recession for direction since we will know which industries fared well once the current one is ended.
A short-lived but severe recession, often known as the Great Lockdown, devastated the economy in the first three months of 2020. Only 32 out of the S&''P 500's 500 equities gained value throughout that time.
There might be several causes for the rise in these stocks that soar in a recession, and the effect of a down economy would differ in each case. However, analyzing the best-performing companies may provide general trends about which stock categories may fare better in recessions.
Regeneron Pharmaceuticals, a biopharmaceutical business that creates and sells drugs to treat a wide range of diseases and conditions, had the best-performing stock in the first three months of 2020.
Regeneron's stock price increased, as did Gilead Sciences', because of optimism about the company's potential therapy for the COVID-19 virus. However, healthcare is known to be more resilient than other industries during economic downturns.
The logic is simple: if you need medical treatment to survive, you won't scrimp on it just because your finances are tight. This phenomenon is referred to in the industry as price inelastic.
More than any other sector, information technology was well-represented above; three IT firms posted double-digit gains even as the economy collapsed.
These three stocks outperformed the market because investors believed they would gain from the worldwide quarantine imposed by the COVID-19 virus rather than because of any inherent defensive qualities they could possess.
The growing popularity of video conferencing boosted Citrix, the necessity for cybersecurity and data backup solutions boosted NortonLifeLock, and the popularity of video games and home computers boosted NVIDIA.
During the first several months of 2020, two real estate businesses beat the market, which was expected to contract in early 2020; companies capitalized on developments like telecom tower REITs like SBA Communications and the rapid deployment of 5G technology by investing in data centre REITs like Digital Realty.
They were the sole survivors when the rest of the real estate investment trust sector was stricken. Most experts agree that the real estate market is very cyclical. People will always require a place to live. Hence certain forms of real estate investment trust are considered defensive.
The field of communication services is quite extensive. Companies in this sector span the telecommunications industry and the online media and entertainment sector, from social networking platforms to video game developers to live-streaming platforms.
Facebook's Meta, Alphabet, Verizon, and Netflix are among its most prominent members. It's no secret that Netflix did well in early 2020. The California-based streamer's subscriber count and the stock price increased due to many consumers' forced stay-at-home viewing habits.
In 2020, Clorox's four-in-one disinfection and sanitizing wipes were widely utilized to prevent the spread of the coronavirus, which led to a very successful beginning for the company.
When the rest of the stock market tanked, it wasn't the only consumer staple to do well. Some other market leaders were Kroger, Hormel Foods, General Mills, Costco, and Colgate.
Due to their essential nature, consumer staples continue to have strong sales even in tough economic times. People still have the exact basic needs regardless of whether they have a job, including the need to eat, shower, and clean their teeth.
It's not possible to generalize about recessions. They're all distinct and can have various causes. This implies that although specific sectors may flourish, others may suffer greatly. Unique among recessions, the one in 2020 was.
It's not often that a deadly illness breaks out and a lockdown is ordered. This essay makes it evident that many of the best-performing firms in the first quarter of 2020 did so because they were in a position to profit from the virus and lockdown rather than because they were better able to weather a recession.
By 2022, the economy will be confronting new kinds of difficulties. We're again in unknown waters in many respects. This mess was sparked by several factors, including COVID-19, the conflict in Ukraine, the oil shock, and low-interest rates that have persisted for years.
The issue of investing during a recession is vast. Thus the list above needs to be more comprehensive. Utilities and personal storage are two more common examples of defensive investments. With that in mind, you should now have a decent jumping-off point for learning how to invest during a downturn. Think about what products and services you and your company need vs those you can do without. Plus, consider which firms may benefit from an increase in customers if people's income drops.
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