Wall Street’s plunge into a bear market after a nearly 11-year bull market has been fast and severe, erasing nearly all the S&P 500’s gains since Donald Trump’s inauguration.
The economic disruptions from the coronavirus pandemic and a steep drop in oil prices have many economists forecasting a global recession as early as next month.
On average, it takes about 40 weeks for markets to recover their losses after entering a bear market, according to Ned Davis Research. But when there’s also a recession the average is 74 weeks.
Yet even in the throes of a bear market there are companies that buck the downward trend, and sectors that tend to perform better by comparison.
“There are certainly going to be some companies that do much better, and there have been in every crisis,” said J.J. Kinahan, chief strategist with TD Ameritrade.
Since 1945, the consumer staples, health care and utilities sectors have fared the best during bear markets, on average, according to data from CFRA. Worst off have been the industrials, consumer discretionary and technology sectors.
That’s generally how the market’s recent downturn is playing out, too. So far, companies in traditionally defensive sectors — consumer staples, health care and utilities — have held up best. The biggest losers have been energy, financials and industrials.
The consumer staples sector includes makers of household goods, such as packaged food and cleaning products like bleach. It also covers supermarket operators, drug stores and other retailers — all companies that have benefited from surging sales as Americans stocked up before bunkering in their homes to help prevent the spread of the coronavirus.
Shares in Campbell Soup, which had been on a years-long decline, are up nearly 12% this month, while Spam maker Hormel Foods is up 16%. Supermarket chain Kroger is up about 21% this month. Walmart has gained 13.8% and Walgreens Boots Alliance is up 15.4%.
Households’ focus on deep cleaning to ward off the virus has also given shares in Clorox a boost. They’re up about 20% this month.
Other than Walgreens, all these stocks are up sharply over the past 12 months, while the broader market has relinquished its gains.
By comparison, the S&P 500 is down nearly 19% this month about 15% from a year ago, and all its 11 sectors are in the red. Only technology stocks are holding on to a slight gain over the past 12 months.
“Everything’s been hit pretty hard. Nobody’s been completely immune to it,” said George Rusnak, managing director of investment strategy at Wells Fargo Private Bank.
In addition to stocks that benefit from consumer spending, Rusnak likes technology and communication services companies. He also favours large-cap stocks over small-cap, as well as those of companies based in emerging markets.
“Right now, we think cyclical or growth-oriented sectors will do better in this typical downturn,” he said. “Historically, that should be the case, so that’s why we’re sticking there.”
The steep losses are an opportunity for investors to buy stocks at more attractive prices than a few weeks ago — if doing so fits into their long-term investing strategy.
“We’ve seen what we think are some over-sold conditions within the equity market that we think are the right play here,” Rusnak said. “Investors should have their long-term plans in place; their goals, their risk tolerance, their time horizons.”