Barclays’ Jonathan Glionna does not think the US economy is about to fall into recession.
But just in case some clients have that opinion, Glionna and team published a note Monday detailing how to invest in a recessionary environment.
For several weeks now there’s been fervent talk about a recession.
In the US the industrial sector is in contraction, economic growth slowed down in the fourth quarter, markets have been rocky, and credit conditions have tightened.
Even still, Glionna doesn’t see a recession on the horizon.
But just to you’re prepared for when this does happen, Glionna outlines the playbook:
“The consumer staples, health care, and telecom sectors are the best places to hide when the economy is entering a recession, based on our historical analysis. The industries that do best include: 1) food, beverage, and tobacco; 2) household and personal products; and 3) health care equipment and services. Our analysis also suggests that stocks with low volatility and companies with high net profit margins outperform when the economy is entering a recession.”
Barclays found that based on every recessionary period since 1973, consumer staples returned 7% six months before the end of recessions and 11% a year after. Healthcare returned 10% one year into recoveries, while telecoms were up 6% within a quarter.
Stocks with low volatility and companies with high profit margins also outperformed, according to Glionna.
Some of his picks from the S&P 500 include Colgate-Palmolive, Johnson & Johnson, Coca-Cola, Campbell Soup and Pfizer.
In terms of sectors, consumer durables and apparel, automobiles and components, transportation, and banks were the outperformers during recessions since 1990.
But of course, this doesn’t matter!
Glionna again (emphasis ours):
“We do not recommend the recession playbook because we do not expect an economic contraction to occur in the near term. In addition, the valuation of defensive sectors such as health care, staples, and telecom has increased in relation to cyclical sectors such as energy, materials, industrials, and discretionary. This often happens toward the end of the business cycle.”
So it’s fine.
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