The Recession Playbook: Three Strategies for Investors
Concerns about the economy and trouble in the U.S. banking sector have led to increased market uncertainty.
Before this began to surface, several factors were driving slower returns:
- Inflation: Above-Target
- Interest Rates: Restrictive
- Economic Growth: Below Trend
In this graphic from New York Life Investments, we look at three recession investment strategies that have historically been resilient when the market has faced headwinds.
1. Value Equities
During periods of high inflation and slower growth, value equities have been well-positioned as a recession investment strategy, thanks to the following factors:
- Income generation
- Quality
- High cash balances
- Low correlation to the economic cycle
Value equities include the four most traditional “defensive” sectors, whose earnings are less correlated to economic cycles:
- Real Estate
- Utilities
- Consumer Staples
- Health Care
Not only have these sectors tended to be more resilient in downturns; cash flows from these sectors have been often positively correlated with inflation.
A moderate equity allocation to value equities within a diversified portfolio could help provide resiliency during times of above-trend inflation and below-trend growth.
2. Commodities
In today’s geopolitical landscape, there are a number of factors that may support the commodity sector, including:
- Energy independence
- China’s reopening
- Minerals and metals to fuel green energy
With this in mind, here’s how investors (Read more...)