By James Royal, Bankrate featuring Brian Spinelli, CFP®, AIF®, Co-Chief Investment Officer
Many economists and investors expect a recession in the not-too-distant future, and while that’s not a given, the conditions could be coming together. The Federal Reserve has been sharply cutting the money supply and raising interest rates over the last 18 months to choke inflation. Inflation has fallen drastically, and it’s hard to see the employment picture staying as strong as it’s been.
For these reasons, many investors are considering what to invest in if a recession does arrive, letting them take advantage of low asset prices for a subsequent rebound. Here’s what some advisors and analysts think are the best investments to own coming out of a recession.
Top investments coming out of a recession
If you’re looking for investments that do well coming out of a recession, it’s important to understand what the economic cycle looks like at that point. When economic growth bottoms, the economy is still very much in the midst of a recession. The news remains dour, and the usual signs of a recession remain evident and ongoing – but the situation as a whole is not getting worse. The Fed has begun lowering interest rates and may lower them further.
But for investors, the key point to understand is that the market is already looking forward.
“Typically by the time a recession has been officially announced, most publicly traded assets have already priced it in,” says Brian Spinelli, CFP, AIF, Co-CIO at wealth advisor Halbert Hargrove. “Stocks generally fall in advance of a recession announcement.”
Broadly speaking, the assets that rebound the fastest tend to be those that suffered the most going into a recession. Meanwhile, those that fared well going into a recession often lag coming out.
“Investments that generally price in the downturn of economic activity in advance are usually what rebound in the middle and coming out of a recession,” says Spinelli. The best rebounders don’t “wait to recover, and history shows they usually start to do so in the middle of a recession. By the time an ‘all clear’ is announced, those types of investments have already priced it in.”