Pick Your Path: Investing Strategies for a Recession or a Recovery

Pick Your Path: Investing Strategies for a Recession or a Recovery

The S&P 500 has struggled thus far in 2016—already down roughly 10% on the year. Its decline, combined with the continued slide in oil prices and overall economic stagnation, has left many observers wondering if we could be on the verge of another recession.

Many experts, despite recent woes, expect markets to bounce back. Goldman Sachs analyst David Kostin argues a US recession in 2016 is unlikely and predicts the S&P 500 to rise to 2100 by the end of the year. He foresees limited risks from any further slowdown in China and believes negative effects from low oil prices will be offset by their benefits to consumers.

Similarly, Barclays analyst Jonathan Glionna says his team’s confidence is boosted by US labor data, which shows a healthy underlying economy that will be able to offset concerns about high yield spreads and declining profit margins. He acknowledges that investors may want to prepare for either scenario—surviving an economic downturn or riding the recovery.

The Recession Playbook

According to Glionna, consumer staples, healthcare, and telecom are safe bets when the economy enters a recession. Industries that tend to be recession-proof are food and beverage, tobacco, household/personal products, and healthcare equipment/services. He also advises picking stocks with lower volatility and companies with high-profit margins.

The Recovery Playbook

Assuming the US is not entering a recession, strategies should be a bit different, according to Glionna and his team. In previous periods of recovery, the best performing sectors have been energy, materials, industrials, consumer durables and apparel, automobiles, transportation, and banks. Furthermore, he advises selecting stocks based on value, high dividend yield, and high debt-to-capitalization, which have all thrived at the end of previous recessions.

The Takeaway

While it is good to be prepared for the worst, Glionna and his team don’t forecast an economic slowdown in the near future. Continuing to monitor market trends will present investors with opportunities to position their portfolios for stagnation or take advantage of growth.

No matter what direction the economy takes in 2016, the experienced wealth management professionals at OptiFour Integrated Wealth Management can help you make the most of your situation. OptiFour has provided financial planning and execution to the Washington, D.C. area for over 25 years. For more information, please visit our homepage.