The Myth of Recession-Proof Stocks

The undeniable reality is this: there’s no such thing as a completely recession-proof stock.

But with that said, it doesn’t mean that there aren’t still wise places for your money when times get tough — and history has proven that there are many sectors that tend to fare a lot better than others.

Today, I’d like to walk you through some tried-and-true pointers on how to buy into stocks, commodities, and assets that hold their value when the markets turn south.

The Myth of Recession-Proof Stocks

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Recession-Proof Stocks: How Different Sectors Perform

A recession affects market sectors in very different ways — so you want to be careful where your money is and when. 

Some sectors, such as consumer staples, utilities, and healthcare, tend to hold up better than others (or even see improvements). That’s because these sectors provide essential goods and services that people still need even when the economy is struggling.

For example, during the 2008 financial crisis, Coca-Cola (NYSE: KO) and Procter & Gamble (NYSE: PG) still managed to do quite well.

The results are consistent. So consistent, in fact, that a short list of stocks managed to do well in the 2008 financial crisis AND the 2020 pandemic meltdown.

According to CFRA Research, here are the stocks that outperformed the S&P 500 in both 2008 and 2020:

  • Accenture PLC (ACN) 2.6%
  • Synopsys Inc. (SNPS) 3.0%
  • Abbott Laboratories (ABT) 10.0%
  • Walt Disney Co. (DIS) 10.3%
  • Netflix Inc. (NFLX) 10.6%
  • Walmart Inc. (WMT) 16.1%
  • T-Mobile US Inc. (TMUS) 17.6%

These stocks prove that sectors matter when it comes to dodging a recession.

But as I said at the beginning, no stock is invincible, and that’s why you’ll want to diversify your holdings so that you can weather the storm.

And the most consistent hedge for these challenging circumstances is gold.

Why Gold Is a Recession-Proof Asset

Gold is a recession-proof asset because it has historically held its value or even increased in value during times of economic turmoil. That’s because gold is the last “safe haven,” meaning that investors turn to it when they are worried about the stock market or the economy.

Gold is a scarce asset, meaning that there is a limited supply of it available. That scarcity makes gold valuable and resistant to inflation. Gold is also portable, meaning that it can be easily transported and stored — this is especially important if there’s a run on the banks, as we saw with Silicon Valley Bank and First Republic. As a hard asset, gold’s value remains intact when other liquidity dries up.

Why Uncle Sam’s Recession Response Fuels Gold Demand

When markets sink toward recession, the US government can’t help but tinker with the markets. But their actions usually carry adverse side effects that hurt stocks and help gold. 

For example, the two biggest tools that Uncle Sam has are the ability to print money and cut interest rates. While they can help stimulate areas of the economy, they ultimately lead to inflation. And then, that inflation erodes the value of stocks, even if they’re in resilient sectors (once again, that’s why there’s no such thing as a completely recession-proof stock!).

Why Market Uncertainty Pushes Investors Toward Gold

It’s no accident that we’ve been seeing record gold prices over the past year. The uncertainty of overseas wars, geopolitical unrest, political gridlock, stubborn inflation, and soaring debt levels have all contributed to hesitation and volatility.

It doesn’t matter that the DOW and NASDAQ have also seen record highs over this period — those sky-high stock prices don’t give investors any wiggle room to avoid downside risk. That’s why gold has risen in conjunction with the rise in equities. It’s the only fallback in case prices fall. And if stocks crumble further, that effect is only going to increase.

Why Gold is A Store of Lasting Value Against the Dollar

Gold has been a store of value for thousands of years. Unlike fiat currencies, which can be printed in unlimited quantities by governments, gold's supply is relatively finite, which helps maintain its value over time. 

That includes the dollar. While 2022 and early 2023 brought record levels of strength for the dollar (mostly due to the fact that overseas economies were in even worse shape than the US), those levels ultimately aren’t sustainable. As former head of PIMCO, Mohamed El-Erian said in May of 2022: “Beware of a global economy with little fires everywhere.” 

The dollar is too vulnerable to these fires, and they’ll slowly burn away its value. That’s where gold once again remains the ideal protection against these risks.

The Big Banks Agree: Why Gold is Rising on Central Bank Demand

Much of the recent increase in gold demand is coming from central banks themselves. As they attempt to shore up their balance sheets with assets that can resist the maladies I described above, they too are turning to gold.

Central banks have been buying up gold in record amounts — hitting numbers that hadn’t been seen since 1963.

Central Banks Are Buying Record Amounts of Gold

For example, central banks accounted for 34% of total demand in the third quarter of 2022. During that time, central banks bought a record 399 tonnes of gold worth approximately $20 billion. Demand in the first nine months of 2022 was up 18% year over year (and back to pre-pandemic levels).

And as Bloomberg reported:

“Central bank purchases for the first nine months of the year now total 800 tons, driven mainly by China, Poland and Singapore, as well as unreported buying. The pace has exceeded the amount for the same period of last year, which ended with record demand.”

China’s buying patterns are particularly noteworthy.

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Why China Is Buying More Gold Than Anyone Else

China is responding to geopolitical uncertainty by snatching up all the gold they can find.

In order to fund this effort, they’re dumping US treasuries and diverting those funds into more bullion.

As you can see in the chart below, they’ve been increasing their gold holdings for 20 straight years — and now they’re doubling down on this gold strategy to the exclusion of all else. 

China is Dumping US Treasuries and Buying Gold

China is trying to stabilize the effects of its own domestic economic slowdown caused by a weak yuan, a growing real estate crisis, and falling GDP.

But China’s woes are also creating a unique opportunity for US gold producers.

Why US Gold Production Is Making a Comeback

Gold’s value remains stable because of its relatively fixed supply. But that doesn’t mean that there aren’t still opportunities to benefit on the supply side. In fact, because of the global pressure we’re seeing now, it’s more important than ever for the US to boost its gold production in every way it can.

That’s why our co-founder Nick Hodge recently made a visit to Idaho where he toured what he’s calling “America’s Next Biggest Gold Mine.”

It’s a key part of his strategy to combat inflation, hedge against recession, and grow his wealth exponentially using the rising price of gold. It’s also a chance to grow the US position against China.

It’s a crucial moment for US gold mining, and Nick believes this is one of the most lucrative gold exploration opportunities he’s ever found.

We live in a world plagued by ever-increasing amounts of uncertainty. Gold remains the asset that holds its value when everything else fails — and that’s why we expect the price of gold to continue to rise.

Make it your own,

John Carl

John Carl
Editor, Daily Profit Cycle