A drop in the stock market and the onset of a recession often go hand-in-hand. In fact, a drop in the stock market is a leading indicator of a recession. When the stock market drops, not all stocks follow the general trend, however. Some are relatively stable and do well in any economic environment, while others prosper in a down market and economy. If you can identify sectors that are resilient in a down market, you will find stocks that buck the market trend.
When people are struggling – or feel they are even if they are not – they shift their purchasing habits from upscale malls to strip-mall and big-box stores. Many of these chains flourished in the 2007-2009 recession and the lean years that followed. Walmart, Family Dollar, Dollar General and other similar discount stores tend to do well in weak markets and economies.
Upscale restaurants suffer in a down economy, but fast food restaurants tend to prosper. People still want to eat out, but do not feel right about spending $25 per person. A fast food meal, however, might cost $25 for the entire family. Grocery stores hold their own in a down market, too. People have to eat under any market or economic conditions, and with more people eating at home, grocery sales and profits may even rise.
Utility stocks hold up well in a down market. In fact, utilities do well in any market because the demand for their services is constant, and their rates are established by the various public service commissions. Utilities are interest rate-sensitive, and rates tend to fall during recessions and bear markets. Because utilities borrow significant amounts of money, their stocks often rise when rates fall.
Candy and Snack Foods
A candy bar is a cheap luxury, and the companies that make candy and snack foods do well in a down market. In 2008, in the middle of a recession and weak stock market. Cadbury posted 30 percent growth, Nestle experienced 12 percent growth and Hershey grew by 9 percent.
Cigarette and alcohol sales do well during hard economic times. The temporary comfort that people get from these products assures that demand will be strong – even growing – during a recession and down market. Even casinos fare well in bear markets. Experience from prior recessions shows that when most stocks slide in a bear market, stocks represented in the Standard & Poor's Casinos and Gaming index do well, as do stocks such as Altria Group, parent company of cigarette maker Philip Morris.
People need health care regardless of the economic climate and the stock market. In fact, demand for health care products and services may even pick up in a down economy due to an increase in stress levels and the related ailments it causes. A company such as pharmaceutical drug manufacturer Baxter International is positioned well to outperform in a bear market.