The general opinion of analysts is that a possible recession awaits us next year. This is evidenced by the S&P 500 index falling by 1,000 points, i.e. a sharp decline in the stock market.
A recession is a decline in business activity that lasts more than 6 months and affects the entire economy: production declines, unemployment increases and personal income decreases.
Types of recession:
- Decline after intense growth.
Intense economic growth accelerates inflation. To slow it down, the regulator tightens monetary policy and raises lending rates. People refuse to take out loans and start saving more. Reduced aggregate demand leads to a recession.
- Demand shock recession.
This is a sudden drop in demand either for individual goods or in general. It can occur as a result of any events leading to a loss of consumer confidence in the population.Citizens simply stop buying goods. This is what happened in 2001 after the September 11 attacks.
- Supply shock recession.
It occurs rarely if there is a sharp drop in the supply of goods. Such a recession of record time and intensity occurred during the 2020 pandemic, when GDP shrank by nearly a third in two months.
- Unplanned recession.
- Caused by Force Majeure circumstances that cannot be influenced: natural disasters, man-made disasters, terrorist attacks, etc. This type of recession is impossible to predict, and therefore this recession is one of the most dangerous for the state and consumers.
Recession because of high foreign debt.
It is also dangerous because it can last for several years and lead to a country defaulting, stocks plummeting, investment outflows, and capital flight.
Psychological recession.
With economic instability and an atmosphere of anxiety in the state, a psychological recession sets in. The distrust of the population in government policy grows.
The recession expected in 2023 will most likely follow the traditional pattern, as it is caused by a sharp increase in interest rates by the Federal Reserve Board. High interest rates on loans are designed to reduce consumer and business demand, thereby curbing inflation.
Recessions are always uncertain. The Fed raised rates repeatedly between 2015 and 2018 without causing a single recession. Right now, two-thirds of analysts-economists expect a recession next year.
Recessions always end. That’s why long-term investors are advised to keep buying stocks regularly. You can invest at regular intervals – you can buy more when stocks are falling in price.
A loss of about 20% of the value of a diversified portfolio over the 6 months of this year signals that recession is near. Virtually all areas will be affected, with only the energy sector benefiting so far, due to oil and gas shortages amid the war in Ukraine and increased demand from the recovering economy after the pandemic.
The classic security sectors are the goods you can’t do without at any time: health care, basic necessities and utilities.
Health care stocks
In healthcare, this could be UnitedHealth Group Incorporated (UNH)-a diversified health insurance company, one of the largest private insurers, serving more than 48 million customers. The company operates the Optum and UnitedHealthcare platforms. These are various segments, including healthcare services, online, pharmacy, and hospital systems.
Its dividend yield (projected as to future value) is -1.21% as of March 2022. Revenue for the 6 months was $160,481 million compared to $141,517 million a year ago. Net income was $10,097 million compared to $9,128 million a year earlier.
Also noteworthy is Anthem, now called Elevance Health (ELV), a major U.S. health insurance company, serving 43 million customers in the United States. The company ranked 50th in the Fortune Global 500 pf 2021. The company’s revenues are growing steadily : it was $139 billion in 2021 and $122 billion in 2020.Net income was $5 billion in 2020 and $6 billion in 2021 . Market capitalization rose from $81 billion in 2020 to $113 billion in 2021. The dividend yield was 1.28% as of March 2022.We can consider the shares of pharmaceutical giant Merck ( MRK). The company’s shares are rising in value, and experts expect earnings to remain stable until 2023.The yield was 3%.
Stocks of funds
Fund investors may be interested in T. Rowe Price Dividend Growth (PRDGX ). The fund seeks dividend income and long-term capital appreciation primarily through equity investments. The fund primarily invests in firms with increasing quarterly payouts. However, the fund has many stocks of companies whose dividends are growing but very small.
At the same time, Vanguard High Dividend Yield Index Fund (VYM), a stock fund that focuses on raising dividends of major companies such as JPMorgan Chase & Co. (JPM) with 2.4% yield, Johnson & Johnson (JNJ) –3.27%, Exxon Mobil Corp. (XOM)– 2.9%.
Investors hope for dividend yield during a recession, because it will help them out, even if shares of the companies lose their value.
Utility companies are called a safe haven in times of inflation, because no matter what the crisis, people will still need to heat their homes and use electricity. Such companies pay high and reliable dividends.
Public utilities
Southern Co (SO).
A holding company for gas and electric utilities serving about 9 million customers. Headquartered in Atlanta. The company has been paying dividends for 21 years, and they have been growing steadily.
Southern had adjusted earnings of $3.41 per share in 2021, up 5% from 2020. Management expects adjusted earnings per share in 2022 to be in the $3.50 to $3.60 range.
At $74 per share, the company’s annual dividend yield is 3.7%.
However, it is worth taking into account the enormously rising gas prices; most likely, the high price will be offset by higher tariffs. However, not everything is so unambiguous with such companies.
High dividends.
Another example of a company with a high dividend yield is Global Partners (GLP). It is one of the largest independent owners, suppliers and operators of gas stations and convenience stores in the northeastern United States. This company is also engaged in the wholesale distribution of fuel products and the transportation of petroleum products and renewable fuels by rail.
The company pays a quarterly dividend of 59.5 cents per share, resulting in an annual yield of 8.7% at $27.78 per share.
The company’s market value is less than $1 billion, and it’s not as attractive to Wall Street, but the company’s sector of interest and high dividend deserve the attention of investors.
Consumer Products
Companies that sell consumer staples are also recession-proof. That is, the business of food producers does not depend on the state of the economy. People will not stop buying food, perhaps cheaper food will be bought, but consumption will not disappear completely.
Also, this sector has a stable basket of consumption: if the price of bread goes up by 1 dollar, people will not stop buying it. The same fact is the reason of low volatility: shares are less vulnerable to recession, but also slowly grow during the general rise.
In addition to the above, rising inflation only helps the food sector. The S&P GSCI Agriculture index is rising uncontrollably, up 57% in the last year.
Producers are increasing their profits, and purchasers of raw materials are raising the price of the final product for the consumer to offset their costs.
The biggest growers of agricultural products on the stock market are Archer-Daniels-Midland (ADM). Market capitalization of $34 billion. Tyson Foods (TSN),market capitalization of $29 billion.
The leaders in the soft drink industry are Coca-Cola (KO), a market capitalization of $246 billion, and PepsiCo (PEP), a market capitalization of $216 billion.
A separate subspecies of the industry is the producers of packaged food (packaged food). Among them, the leading companies are Kraft Heinz(NASDAQ:KHC) and General Mills(NYSE:GIS) ($46 billion and $36 billion).
Amazon.com (AMZN) is the world’s largest company in the e-commerce and public cloud computing platform markets by revenue and market capitalization. This huge online store sells everything from electronics to food. Despite falling shares , this company is as recession-proof as possible . The company has a market capitalization of $1.45 trillion.
No one knows for sure if a recession is coming, but parts of the market are estimated to be near recession. Therefore, investors should strive for balance in their portfolios.
Also Read: Is It Possible To Create Your Own NFT And Make Money On It?
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