Market Winners and Losers When Recession Hits | financial markets

Soft landing of economies while suddenly raising interest rates is the goal that central banks have set themselves. Although the US economy is offering greater resistance so far, more and more voices point to recession every day. An idea that became especially popular after the financial shock that followed the fall of the Silicon Valley bank. Schroders analyzed data for the past 50 years for the US economy and they are clear that this year there will be a recession. But every crisis has its opportunities and from the manager they consider that despite the upcoming turmoil, spaces can be found in the market through which to move without having to step back from the portfolio.

The manager remembers that risky assets have always been getting worse during the recessions of the past 30 years. Thus, drawing lessons from past decades, the assets that suffer the most when the economy contracts are stocks and commodities, especially industrial metals and energy. In contrast, Treasury bonds have consolidated on those occasions as the best asset of refuge and, to a lesser extent, the US dollar, which also maintains its status as a safe-haven value.

They assure from Schroders that, despite the fact that “US stocks almost always fell during recessions, they rebounded strongly at the end of the period,” which is why they recommend not to lose sight of the market revaluation. The combination of cheap stock valuations and future expectations of improving economic activity is the basis for stock recovery.

variable income behaviour

Stocks performed shaky during recessions and losses were inevitable. But there are differences by sectors in the size of the falls. Undoubtedly, the worst results are taken by the cyclical sectors, especially the financial and industrial sectors. There are also niches that have largely resisted and have higher returns, such as consumer staples and the health sector. “This is because investors sought out companies offering high returns and strong balance sheets in times of economic stress,” explains the director.

In any case, the British manager notes that some of the sectors that fared worst during recessions, such as real estate and finance, recovered strongly towards the end of the recession. In the case of banks, they count in favor of improving margins allowing interest rates to be raised as well as with increasing interest income when bond yields rise. “Even the behavior of some of the more price-sensitive cyclical sectors, such as consumer discretion and technology, recovered before the recession ended,” they add to Schroders.

As an exception to the poor balance experienced by raw materials in a recession, gold tends to shine in these periods thanks to its safe-haven status.

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