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S&P 500 investors are playing a waiting game: When will the next recession hit? But it doesn’t have to be a game of chicken, too.
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Contrary to popular belief, you don’t have to bail out of all stocks in a recession. Some S&P 500 stocks actually perform well during economic slowdowns. No less than 19 S&P 500 stocks, including consumer staple Walmart (WMT), health care Baxter International (BAX) and tech stock Analog Devices (ADI), beat the S&P 500 during all of the past five recessions, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. What’s more, they all posted average gains — some upward of 40% — during those recessions.
Seeing so many S&P 500 stocks outperform even during a protracted economic slowdown highlights the perils of bailing out completely from stocks.
“Many pundits are issuing recession warnings and saying the economy is heading for a hard landing,” said Jeffrey Roach, chief economist at LPL Financial. “Amid the cacophony of voices, we think the economy is slowing just like central bankers want but not shrinking. Further, we argue that a slowing economy is very different from a shrinking one.”
Why Recession Is On The Table For S&P 500 Investors
Normally, investors expect a recession every decade. And it’s only been two years since the Covid-19 outbreak sparked one in 2020. But there’s real reason to worry.
Skyrocketing inflation, especially for fuel and housing, is crimping consumer spending. Some of the problems, too, are hardwired into the economy for now. Food shortages and supply chain woes are the result of war in Europe and Covid concerns, which the Federal Reserve can’t control.
And then there’s the Fed. The U.S. Central Bank is vowing to aggressively cool the economy. Investors are braced for short-term interest rates to jump by 2.5 percentage points by year’s end, says The Economist. And when rates rise that fast, recession usually follows. The Economist found that in six out of the seven cycles that interest rates rose this fast a recession appeared in less than two years.
Investors follow the same script with the S&P 500 in recession, too. They sell. But not as much as you might think. There have been 11 recessions in the U.S. since the one that started in 1953. And the S&P 500 dropped an average 2.1% during them. Sure, it can be worse. The S&P 500 plunged 11.2% in the last recession that started in 2020. And it fell nearly 38% in the 2007-starting recession. And this year so far, the S&P 500 is already down more than 12%.
But not all S&P 500 stocks crater in recessions.
Top S&P 500 Stocks During Recessions
Low prices and necessities play well in recessions. So it’s not all that surprising that Walmart is the top S&P 500 stock in tough times. Selling low-cost goods is the retailer’s thing.
Shares of Walmart actually jumped 39.5%, on average, during the past five recessions. And it’s not just some kind of lucky fluke. Shares gained in each of the past five recessions. And sometimes by quite a bit. Shares of Walmart shot up 11.8% during the recession that started in 2020. Compare that to the S&P 500’s 11.2% drop in that time. And in the prior recession starting in 2007, where the S&P 500 plunged 38%, Walmart shares rose 1.1%.
Health care, too, is a fairly safe haven during recessions. The Health Care Select Sector SPDR (XLV) got through the Covid recession by only falling 0.4%. But it didn’t get off so easily in the 2007 recession, plunging nearly 28%. But Baxter, thanks to its recurring revenue streams, is a stalwart in recessions. Shares rose an average 25% in the past five recessions. And it rose in four out of the past five recessions.
A Tech Stock For Recessions?
But don’t think you need to hide out only in staples and health care to outperform in a recession. Computer chipmaker Analog Devices is in the cyclical technology sector. Again, though, due to the fairly steady demand for the kind of chips it produces, it’s a recession winner, too. Shares rose an average 21.8% in the past five recessions. It even held up pretty well during the tech-bubble-induced recession that started in 2001. Shares of Analog Devices rose 3.2% in that recession, while the S&P 500 dropped 7.7%.
To be sure, you should always monitor the market for the proper times to buy. But if you think you have to bail out of S&P 500 stocks in a recession, you might end up losing the game.
Top S&P 500 Stocks During Recessions
All topped the market with average gain in each of the past five recessions
| Company | Symbol | Average % stock ch. last five recessions | Sector |
|---|---|---|---|
| Walmart | (WMT) | 39.5% | Consumer Staples |
| Baxter International | (BAX) | 25.4 | Health Care |
| Kroger | (KR) | 22.7 | Consumer Staples |
| Analog Devices | (ADI) | 21.8 | Information Technology |
| Sherwin-Williams | (SHW) | 20.1 | Materials |
| Pfizer | (PFE) | 16.9 | Health Care |
| General Mills | (GIS) | 16.8 | Consumer Staples |
| Hormel Foods | (HRL) | 16.1 | Consumer Staples |
| Johnson & Johnson | (JNJ) | 15.8 | Health Care |
| Conagra Brands | (CAG) | 15.6 | Consumer Staples |
| Campbell Soup | (CPB) | 13.0 | Consumer Staples |
| W.W. Grainger | (GWW) | 11.7 | Industrials |
| Kellogg | (K) | 11.4 | Consumer Staples |
| International Flavors & Fragrances | (IFF) | 8.5 | Materials |
| Abbott Laboratories | (ABT) | 7.8 | Health Care |
| WEC Energy | (WEC) | 4.8 | Utilities |
| PepsiCo | (PEP) | 4.7 | Consumer Staples |
| Colgate-Palmolive | (CL) | 4.2 | Consumer Staples |
| Teleflex | (TFX) | 2.6 | Health Care |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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