Jun 30, 2022
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The U.S. economy made a strong recovery from the COVID-19 pandemic. But according to Tesla CEO and billionaire Elon Musk, the good times might be over pretty soon.
“I think a recession is inevitable at some point,” he said at the Qatar Economic Forum earlier this month.
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“As to whether there is a recession in the near term, that is more likely than not. It is not a certainty, but it appears more likely than not.”
This isn’t Musk’s first economic warning.
In an email to Tesla executives earlier this month, Musk said that he has a “super bad feeling” about the state of the economy and wants to cut 10% of the company’s workforce.
Musk isn’t the only one with this view. A new survey by the Conference Board shows that more than 60% of CEOs globally expect a recession in their region of operations by the end of 2023.
It doesn’t help the case that we are in a bear market already. If the economy falls into a recession, many stocks could see further downside.
The good news? Some sectors are more recession-resistant than others. Here’s a look at three of them.
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Consumer Staples
Consumer staples are essential products such as food and drinks, household goods, and hygiene products.
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We need these things regardless of how the economy is doing.
If a recession hits the U.S. economy, many companies will likely see their business deteriorate. However, we’ll probably still see Quaker Oats and Tropicana orange juice — made by PepsiCo (PEP) — on families’ breakfast tables. Meanwhile, Tide and Bounty — well-known brands from Procter & Gamble (PG) — will likely remain on lists coast to coast.
You can gain access to the group through ETFs like the Consumer Staples Select Sector SPDR Fund (XLP) and the Vanguard Consumer Staples ETF (VDC).
Utilities
The utilities sector consists of companies that provide electricity, water, natural gas and other essential services to homes and businesses.
The sector isn’t a fascinating one, but it is recession-resistant: No matter what happens to the economy, people will still need to heat their homes in the winter and turn the lights on at night.
Meanwhile, high barriers to entry protect the profits of existing utility companies. Building the infrastructure needed to deliver gas, water, or electricity is quite expensive, and the industry is highly regulated by the government.
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Thanks to the recurring nature of business, the sector is also known for paying reliable dividends.
If you are looking for the best utilities stocks, names in the Utilities Select Sector SPDR Fund (XLU) provide a good starting point for further research.
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Healthcare
Healthcare serves as a classic example of a defensive sector thanks to its lack of correlation with the ups and downs of the economy.
At the same time, the sector offers plenty of long-term growth potential due to favorable demographic tailwinds — particularly an aging population — and plenty of innovation.
Average investors might find it difficult to pick out specific healthcare stocks. But healthcare ETFs can provide both a diversified and profitable way to gain exposure to the space.
Vanguard Health Care ETF (VHT) gives investors broad exposure to the healthcare sector.
To tap into specific segments within healthcare, investors can look into names like iShares Biotechnology ETF (IBB) and iShares U.S. Medical Devices ETF (IHI).
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
