Recession Risk Hits 7-Year High: 5 Secure Picks

Fresh surveys from Bloomberg and The Wall Street Journal indicate that chances of a near-term recession are spiking. A confluence of factors, including the trade war with China, a tighter rate regime and December’s equity market sell-off have helped to elevate such concerns significantly. And the longest federal government shutdown in U.S. history hasn’t helped matters.

Economists think that the impasse could shave crucial points off this year’s GDP. Expectations of a recession in 2020 are even higher, and at the very least we could be in for a significant slowdown this year. This is why it is important to make your portfolio as recession proof as it can get.

Apart from consumer staples and utilities, discount retailers, low-cost airlines and healthcare providers are stocks, which could be relatively unaffected by recessionary conditions. Adding them to your portfolio make for a smart move at this point.

Odds of Recession Increase Exponentially

The latest monthly poll conducted by The Wall Street Journal estimates that there is a 25% chance of a recession occurring within the next 12 months. These are the highest odds since October 2011 and represent an exponential increase from 13% recorded last year.

The trade war with China, a spike in rates and December’s market sell-off are the primary reasons for heightened odds of a recession. In fact, the outlook for 2020 is even grimmer. There is a 56.6% chance of a recession next year, which features presidential elections, per economists.

A Bloomberg survey conducted over the past week revealed similar chances of a recession. Analysts who participated in the survey believe there is median 25% chance of a downturn in the next 12 months, higher than the 20% revealed by December’s survey.

Slowdown in 2019, Recession in 2020?

The first recessionary fears, which surfaced last year, were sparked by prospects of a yield curve recession. Analysts at JPMorgan (NYSE:JPM) believe that declining yields, taken together with recent equity market losses and mounting low-grade debt levels, indicate that there is a 50% chance of a slowdown within a year.

Per Bloomberg’s survey, the median estimate for this year’s economic growth declined to 2.5% from the 2.9% recorded in 2018. This is likely because the impact of last year’s tax cuts have begun to fade. Meanwhile, China’s economy continues to struggle and central banks across the world. These factors have been cited by Societe Generale (OTC:SCGLY) as reasons for a downturn in 2020.

Ultimately, even if a recession doesn’t occur this year, the odds of a near-term slowdown have increased significantly. While jobs data remains strong, PMI numbers have declined to a 15-month low. Additionally, manufacturer’s business confidence has plunged to a near two-year low.

Our Choices

Several surveys indicate that the chances of a near-term recession have increased significantly. Trade tensions, tighter rates and fears of an economic slowdown have contributed to such speculation. The effect of last year’s tax cuts, which provided substantial stimulus last year, have also started to fade.

This is why it is prudent to add stocks to your portfolio, including utilities and consumer staples, which can protect your profits from recessionary conditions. However, picking winning stocks may be difficult.

This is where our Zacks Investment Research

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Written By: Zacks Investment Research