What basket of stocks have outperformed the market during financial crises

Bear markets can often generate different feelings amongst investors. On the one hand, people are worried about money already lost and concerned that markets may fall even further and perhaps it's time to cut losses. On the other hand there is a sense of opportunity to buy a stock while it's low and then cash in big when the market goes up again.

With the market slumping, we tried to draw inspiration from previous downturns and see which stocks were the big winners during those times. When the economy isn’t doing well, people adjust their behavior to the times.

Consumers purchase cheaper products, try to save money doing more of their own home and auto repairs, look for ‘low cost’ luxuries – from eating out, toys or even a budget vacation – but also maintain critical spending on healthcare.

While past performance can’t give us any guarantees for the future, looking at previous recessions and considering how consumers and businesses changed their purchasing behavior in response can help investors to make more informed decisions and fare better during these downturns.

We decided to look at stocks in the UK and US and put each in its own recession basket.

Our group of UK recession stocks outperformed the FTSE 100 by 29% during the 2007-9 global financial crash and by 13% during the recent Covid period of the first half of 2020.

The UK basket of recession stocks include a number of ‘defensive stocks’, such as pharmaceutical companies AstraZeneca and GlaxoSmithKline, and tobacco stocks British American Tobacco and Imperial Brands, both of which benefit from their market-leading dividend yields of over 7%. Consumer product and food stocks such as Unilever and Premier Foods are also included. Other stocks include: Biffa, Pearson, Primary Health Properties and 3i Infrastructure.

The US recession group did even better in the global financial crisis, outperforming the S&P 500 by 41%, but only by 5% during the shorter-lived Covid downturn.

For the US recession basket, discount, and low-price retailers such as Walmart, Ross Stores and Dollar Tree, with McDonalds also benefiting from consumers looking for cheaper outings. Similarly, home DIY brands such as Home Depot, Lowe’s and auto repair parts stocks Autozone and O’Reilly are included. Healthcare related stocks such as Amgen, Abbott Laboratories and Amgen were also part of the basket.

Just as impressive is the ‘all-weather’ performance of both. The US recession stocks are up 833% since the eve of the global financial crisis through to the first half of 2022 versus ‘only’ 170% for the S&P 500 and 360% for the NASDAQ. Similarly, the UK stocks making up the recession basket are up 183% versus 15% for the FTSE 100, over the same period.

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