Your Guide to Defensive Inflation Investing

The pendulum is swinging the other way. 

That’s what some companies are experiencing as the economy continues its downward spiral. 

Defensive Investment Strategy

Let’s wind the clock back just two years. With everyone locked in their homes and businesses shuttered, some companies did especially well. People were buying Pelotons because gyms were closed. 

More people were buying Netflix subscriptions because movie theaters were closed.  

More people were trying their hand at investing via Robinhood because stimulus checks were burning holes in their pockets. 

In short, these companies benefited in unprecedented ways because of the pandemic. 

But now, these companies are front and center for job cuts and layoffs. 

Peloton cut 3,000 jobs earlier this year, Robinhood laid off 9% of its staff, and Netflix recently announced a second round of layoffs this year affecting hundreds of employees. 

This could be seen as a natural progression of society recovering from the slowdown caused by the pandemic. But it could just as easily be a sign of things to come. 

Consumers are spending less because of inflation. It makes sense, then, that the pain is going to visit just about everyone… not just the companies that did well during the start of the pandemic. 

The tech industry is also going to feel some pain. Elon Musk announced a workforce reduction for Tesla. Likewise, a long list of companies in gaming, e-commerce, fintech, and countless other arms of technology are letting workers go in bids to stay afloat. 

With this recession just getting underway, and the Federal Reserve essentially admitting it will get worse before it gets better — we’re only seeing the start of it. 

There’s no telling just how bad this is going to be. But it’s unlikely that this spread of job cuts is going to stay contained to the relatively few industries it’s affected so far. 

Recent jobs numbers showed that 372,000 jobs were created in June across a mix of industries. Everything from professional and business services to hospitality saw an increase in workers. The mainstream will celebrate this without the caveat that this might be something of a mixed bag. 

How many of those new jobs will be able to help the person maintain a standard of living, especially in the face of rampant inflation? How many of the employees in question are people entering the workforce for the first time versus people re-entering because they’re concerned about rising costs across the board? 

These are the questions that need asking. 

It’s a slowly collapsing house of cards… an event that’s been in-the-making for some time now. 

There are still a few holdouts with their fingers in their ears, trying to pretend everything is alright. But all the signs point to the opposite. 

Maybe they’ll come around when more layoffs start making the headlines. Maybe it’ll happen in a few weeks as more companies start releasing their Q2 numbers in line with consensus numbers that have been revised downward. 

Or maybe it will happen when the Fed runs out of moves and can no longer kick the can down the road. 

Whatever the scenario, for those who refuse to face reality so far, it’s going to hit hard and it’s going to do so very soon. 

As an investor, there are still things you can do to get ahead of it and avoid the pain as much as possible. 

This is the time to be defensive. 

The time to buy the dips has passed. 

Instead, you want to look at sectors that are set to weather these choppy waters better than others. 

There are new positions to be added to a portfolio and sectors to explore… but it’s something that has to be done carefully.

Ryan Stancil

Ryan Stancil
Editor, Daily Profit Cycle