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#Must Read, #Industries,#Stocks,#ETFs that may benefit from future recession.

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Recently, the Fed raises interest rates, or stops raising interest rates, the US debt ceiling crisis, recession crisis and etc fills in the market.

Disclaimer: The content in this article comes from public information and is for exchange and discussion only, not as direct investment advice.

Latest recession news in 24 hours

1. What is Recession？

Typically, there are some signs of a recession as followed:

Generally speaking, During an economic recession, all consumption and investment will be conservative, people may lose their jobs, and business performance declines. The debt ratio, default rate and bankruptcy rate increase, and even the property market bubble, bank run, asset speculation bubble burst and so on.

Investors prefer to keep cash and invest in low-risk investments. The recent data shows global equity funds suffered their biggest outflows in the week ended May 3, with net outflows of $16.9 billion, the biggest weekly outflow since March 29.

In addition, the redemption scale of global stock funds reached 6.6 billion U.S. dollars last week, the highest in 2 months; the inflow of money funds surged to nearly $60 billion, and the inflow of bond funds was $11 billion.

And the U.S. economic data for the Q1 showed a bleak outlook for the economy this year, we just see safe-haven assets such as gold $Gold Main Chain 2306(GCmain)$ , Silver $Silver Main Chain 2307(SImain)$ and related targets hit new highs in May 2023.

The global economy is facing some big challenges：

• On one hand is the Fed have had to increase interest rates due to inflation. The U.S. federal funds rate has reached 5.25%, the cost of corporate bond issuance is 7%, the cost of high-yield bonds is 9% to 11%, and the interest rate of real estate development loans is now 12% to 15%. For many investors, projects that could make money in the past are not easy to do now.

• On the other hand, it is really impossible to support further interest rate hikes based on the economic fundamentals. Bankings are under extreme pressure, interest rates are inverted and so on. Raising interest rates has a huge negative effect on the slowdown of the entire economy, and the market predicts that the Fed will likely suspend interest rate hikes in June. High interest rates, high inflation, and a rapid slowdown in global economic growth will soon lead to a global recession.

2. Any Special Invests Highlights During Recession?

Capital_Insights summaries some directions worth following for investors:

A. Consumer Staples/Utilities/Healthcare Sectors:

During a recession, the healthcare and consumer staples sectors tend to outperform other sectors as consumer demand shifts.

• The US experienced a mild economic recession in 2001, and fell into a deep recession in 2007 due to the outbreak of the financial crisis, which lasted for a long time, from December 2007 to June 2009.

• During the mild recession in 2001, the consumer staples, utilities, and healthcare sectors were generally more resilient relative to other sectors and outperformed the $S&P 500(.SPX)$ . During the deep recession that began in 2007, all sectors of the US stock market performed poorly, but the decline of these three sectors was smaller in comparison.

• Consumer staples stocks of companies usually provides products or services even if there is an economic recession, such as: $Wal-Mart(WMT)$ , $McDonald's(MCD)$ , $Home Depot(HD)$ , $Procter & Gamble(PG)$ , $Unilever PLC(UL)$ , $The Kraft Heinz Company(KHC)$ , $AES Corp(AES)$ , $Entergy(ETR)$

• The healthcare sector includes biotech and pharmaceutical companies such as $Pfizer(PFE)$, $Johnson & Johnson(JNJ)$ even the recently skyrocketing $Eli Lilly(LLY)$ , $Novo-Nordisk A/S(NVO)$

• All other considered a defensive stock includes food and beverages, household and personal products, even the alcohol and tobacco industries, etc. are better performed industries during recession.

B. Healthy large-cap stocks: Large-cap stocks are shares often valued at $10 billion or more.

• For example, $Berkshire Hathaway(BRK.A)$ , which has a net profit rate of 5.6 times in the first quarter 2023, holds many large-cap stocks, such as $Apple(AAPL)$ and so on. Even in times of geopolitical tension, Berkshire has performed so well because it is still a beneficiary of global resource constraints, holding a large number of leading global infrastructure assets such as agriculture $John Deere(DE)$ , grain, transportation, mining, and shipping companies.

Apple Now Forms Nearly Half Of Berkshire Hathaway'S Portfolio, Warren Buffett Trims Stake In Chevron, CNBC

• It can be said that Warren Buffett's almost paranoid adherence to good companies is the reason for his great long-term investment success. Many professional investors believe that low debt, profitability, strong balance sheets, and positive cash flow can help companies weather difficult economic times. These companies tend to be more stable during periods of volatility and less at risk of failing.

C. ETFs that track specific industries:

Of course, if you are not sure whether to invest in a specific company, or you can choose to invest in generalized funds, such as exchange-traded funds and low-cost index funds, in order to reduce the risk of recession through diversification.

The following two directions are suggested according to the first two points show attractive during a recession:

• The Top-Tier ETFs are defined as having a large amount of assets under management and a great deal of liquidity in the market. $Consumer Staples Select Sector SPDR Fund(XLP)$ , $iShares U.S. Healthcare Providers ETF(IHF)$ , $Vanguard Dividend Appreciation ETF(VIG)$

• The Second-tier ETFs have somewhat lower liquidity and assets, with lower volumes and relatively more volatile stocks in their portfolios. $Utilities Select Sector SPDR Fund(XLU)$ , $Invesco Dynamic Food & Beverage ETF(PBJ)$ , $Vanguard Consumer Staples ETF(VDC)$

  By capital_Insights

D. Fixed income and dividend income investments:

During a recession, investors often flock to fixed-income investments (such as bonds) or dividend-yielding investments (such as dividend stocks), and the associated regular cash payments can help cushion investors against the downturn.

And consistently growing dividends is also a sign of a company's financial strength and discipline, a healthy balance sheet and steady cash flow -- all factors that can help companies weather recessions.

Goldman Sachs chief U.S. equity strategist David Kostin has publicly stated that stocks with high cash returns have outperformed stocks with high levels of capital spending and R&D before and after the past three recessions. Investors who are prepared for greater market volatility should prioritize stocks with higher dividend yields, where dividend growth may be more important, the bank noted.

Below are 3 related ETFs you may consider:

• $WisdomTree U.S. LargeCap Dividend Fund(DLN)$ : This index fund absorbs about 300 of the market’s largest dividend-payers and weights them by their projected dividends. Stocks with the best quality and momentum characteristics receive a 50% weight boost, and a series of constraints helps the fund avoid concentration.

• $iShares Edge MSCI Min Vol Global ETF(ACWV)$ : This fund uses an optimizer to select and weight stocks from the MSCI ACWI Index. Its number-one objective is minimizing volatility. The fund sweeps in some of the world’s most stable stocks, but it also considers how companies behave relative to one another.

• $Vanguard Intermediate-Term Government Bond Index Fund ETF Shares(VGIT)$ : This fund takes a cut-and-dried approach. It builds a market-value-weighted portfolio of U.S. Treasury bonds with three to 10 years remaining to maturity. Market-value weighting makes sense in the U.S. Treasury market, which closely reflects inflation and interest-rate expectations. But this fund’s real advantage lies in its low cost. Its 0.04% expense ratio is a much lower hurdle than that of many of its peers.

YTD 2023

3. Special notes

Ordinary investors may have more pessimistic understanding of recession, while some professional investors pointed that the downturn in the recession is a good thing.

Once the economy is in recession and enters a downward cycle, when you holds cash flow, you can seize more and better investment opportunities, and it is not recommended to leverage.

In any case, long-termism, following the trend, and maintaining a good attitude are all cognitions that investors must have. As an investor, diversifying a portion of your portfolio is a good way to spread out your risk so you're not as affected by market volatility.

There are also short-selling strategies that can be applied in tradings. Do you have anything to share about good investment directions or targets in recession to protect yourself now. ?

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