How to Recession-Proof Your Portfolio with These 3 Sectors

How to Recession-Proof Your Portfolio with These 3 Sectors

Different sectors of the U.S. economy have different levels of exposure to recession risk.

Health care, utilities, and consumer staples are more resilient to downturns, as they have lower correlation to economic cycles, lower rate-sensitivity, higher cash buffers, and lower capital expenditures.

On the other hand, financials and industrials tend to perform worse during recessions, as they are more sensitive to interest rate hikes and demand shocks.

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The Insight: How To Find The Opportunities

some possible stock investment opportunities are:

• Investing in defensive sectors that have strong balance sheets and profitability during market stress, such as health care, utilities, and consumer staples. These sectors may offer stable dividends and lower volatility.

• Avoiding or reducing exposure to cyclical sectors that are more vulnerable to recession risk, such as financials and industrials. These sectors may face margin pressures and lower earnings growth as interest rates rise and demand slows down.

• Diversifying across different regions and asset classes, as the U.S. stock market may be overvalued and primed for a shift. Global stocks may gain a greater market share and offer better valuations and growth prospects.

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#QuoteOfTheWeek

"All intelligent investing is value investing, acquiring more than you are paying for. You must value the business in order to value the stock."- Charlie Munger

Smart stock investing mirrors intelligent value principles—acquire assets exceeding their cost.

Assess a company's true worth to appraise its stock accurately.

In essence, value the business to truly value the stock—a fundamental principle echoed by investing sage Charlie Munger.

#What is happening this week?

Australia’s inflation slows down

In this week's economic analysis, we delve into the most recent developments shaping the economic landscape of Australia.

The Consumer Price Index (CPI) for October, released on a monthly basis, indicated a 0.3% decrease, leading to a drop in the annual inflation rate from 5.6% to 4.9%.

Notably, the prices of goods experienced a 0.1% decline, while services inflation witnessed a decrease of 0.7%. Despite the Reserve Bank of Australia (RBA) Governor underlining the importance of policy tightening if inflation persists, experts anticipate a slowdown in both inflation and the labor market in the coming quarters.

Speculation suggests that the cash rate will likely remain unchanged until the third quarter of 2024.

US GDP growth beats expectations

In the third quarter, the US gross domestic product expanded by 5.2%, as indicated by the Commerce Department's second assessment. The initial projection was 4.9%, and economists anticipated a 5% figure, making this report particularly robust.

The heightened growth was attributed to business investments surpassing expectations and increased government expenditures. Although consumer spending was revised downward (from 4% to 3.6%), it still signifies substantial growth. A continued decrease in inflation would be highly favorable in this context.

Charlie Munger passes away

Charlie Munger, who departed last week just shy of his 100th birthday, is now at peace. Munger, alongside Warren Buffett, collaborated for approximately six decades, gaining renown for their valuable insights into investing and the impressive returns they achieved.

It's worth noting that Buffett acknowledged Munger's role in transforming his approach to investing. Initially focused on acquiring decent companies at attractive prices, Buffett shifted under Munger's influence to prioritize the acquisition of outstanding companies at reasonable prices.

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James Lim, SFA Founder

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