Stocks that Performed Well During the Great Recession and Could Do So Again

The likelihood of a recession in the United States by 2025 or within the next year is increasing, according to leading Wall Street firms and economists. This risk has surged recently due to trade tensions and potential tariffs that may impact U.S. and global economic growth and spark inflation.

Probability of a Near-term Recession

Estimates of the probability that the U.S. will experience a recession in 2025 or sooner range between 40% and 60%, though some sources indicate different figures. In early April, Goldman Sachs raised its one-year recession-risk estimate to 45%, up from 20% in late March. Concurrently, JPMorgan placed the odds at 60%, a rise from the previous forecast of 40% in early March, citing ongoing tariff concerns despite a temporary pause in some measures by President Donald Trump.

Stocks Likely to Withstand a Recession

Certain categories of stocks traditionally perform well during economic downturns, primarily defensive stocks that pay dividends. These include:

• Essential goods and services: Companies producing necessary goods and services remain resilient irrespective of economic conditions.
• Precious metals: Gold and silver mining stocks are often seen as hedges against inflation and currency depreciation, which can occur during recessions.

Examples include:

• Consumer staples: Companies manufacturing food, beverages, and home care products.
• Utilities: Providers of essential services like water, electricity, and gas.
• Healthcare: Pharmaceutical and medical device companies.
• Discount retailers: Retailers offering cheaper products gain traction as consumers become more price-focused.

Another group includes "small indulgence stocks," representing products or services people continue to purchase as modest treats during tough times, such as video streaming and comfort foods.

Stocks’ Performance During the Great Recession

The Great Recession, lasting from December 2007 to May 2009, saw the S&P 500 index drop 35.6%. However, some stocks gained or held their value:

Stocks that gained:

• Netflix: Experienced significant growth as a leading video-streaming service.
• iShares Gold Trust ETF: Maintained performance by tracking gold prices.
• J&J Snack Foods: Offered niche snack foods.
• Walmart: Benefited from its low-price strategy.
• McDonald’s: Sustained revenue as a major fast-food chain.

Stocks that held up relatively well:

• Newmont: Significant gold mining operations.
• Hershey: Major chocolate and snack food provider.
• Church & Dwight: Known for household and personal care products.
• American Water Works: Large utility company.
• NextEra Energy: Leading provider of renewable energy.

Conclusions

1. Gold-related stocks and ETFs may perform well during recessions but often underperform during economic booms due to their volatility and cyclical nature.
2. Companies like Netflix and Hershey exemplify "small indulgence stocks" that consumers continue to purchase amid economic constraints.
3. Utilities like American Water Works and NextEra Energy can outperform despite conventional beliefs, highlighting the long-term value of such investments.
4. Stocks receiving little media attention, such as Church & Dwight, can still prove to be strong investments.

Recommendations for Investors

With recession odds as high as 60%, investors are advised to review and potentially adjust their portfolios for recession resilience. However, long-term investors should avoid fully exiting the market or making drastic changes, as timing the market is highly challenging. Staying invested allows participation in the recovery and growth phases following downturns. Over time, the stock market’s trajectory has generally been upward, favoring those with a long-term perspective.

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