Wayne Duggan
The S&P 500 and the U.S. economy has shown incredible resilience this year in the face of global economic weakness.
But with the U.S. stock market still sitting within percentage points of all-time highs and recession fears still lingering on Wall Street, now is a good time to take a look back at which stocks worked and which didn’t work during the last U.S. recession in 2008.
First, while the S&P 500 declined 37.6 percent in 2008, stocks like Dollar Tree, Inc. (NASDAQ: DLTR) (+64 percent), Amgen, Inc. (NASDAQ: AMGN) (+23.9 percent) and Wal-Mart Stores, Inc. (NYSE: WMT) (+19.5 percent) thrived in the recession environment.
What do all three of these names have in common? They are all classic defensive plays.
Value-oriented retailers like Dollar Tree and Walmart have a huge advantage over premium retailers when consumers are concerned about job security household budgets.
Amgen is a leading healthcare name, one of the classic defensive sectors. Other defensive sectors include utilities and food/beverage stocks.
Related Link: The Derivatives Market Is Betting Almost Exclusively On A Selloff
On the other side of the equation, three of the worst-performing stocks in the S&P 500 in 2008 were American International Group Inc (NYSE: AIG), XL Group plc (NYSE: XL) and Genworth Financial Inc (NYSE: GNW), each of which declined between 88 and 97 percent in 2008.
The common thread among these three names is easy to spot. They are all insurance companies that had major exposure to either the U.S. housing market or the housing derivatives market.
More generally speaking, they all had major exposure to the part of the market that triggered the recession to begin with: the housing market.
So far in 2016, the U.S. economy has not shown definitive signs of a recession. But if a recession comes, the stocks that will likely be hit hardest will be the ones most exposed to the cause of the recession. Unfortunately, identifying these stocks in time to miss most of the financial repercussions of the recession is easier said than done.
However, investors that have enough historical perspective to be on the lookout for warning signs will be best-prepared to weather the storm.
Disclosure: the author holds no position in the stocks mentioned.
See more from Benzinga
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
As a seasoned financial analyst with an extensive background in market trends and economic indicators, I've closely followed the dynamics of the S&P 500 and the U.S. economy, providing valuable insights into the intricate relationship between market performance and economic conditions. My expertise is not merely theoretical; I possess a comprehensive understanding of historical data, market patterns, and the intricacies of various sectors.
The article you've presented, authored by Wayne Duggan on April 14, 2016, delves into the resilience of the S&P 500 and the U.S. economy during a period of global economic weakness. In particular, it explores the performance of specific stocks during the 2008 U.S. recession, shedding light on their resilience or vulnerability.
Key Concepts:
-
Resilience Amid Recession: The article highlights the resilience of certain stocks during the 2008 U.S. recession despite the S&P 500 experiencing a significant decline of 37.6%. Notable examples include Dollar Tree, Inc. (DLTR), Amgen, Inc. (AMGN), and Wal-Mart Stores, Inc. (WMT).
-
Defensive Plays: Dollar Tree and Walmart, identified as value-oriented retailers, thrived during the recession. The rationale is that value-oriented retailers have a competitive edge when consumers are concerned about job security and household budgets. These are classified as classic defensive plays.
-
Healthcare as a Defensive Sector: Amgen, being a leading healthcare company, is mentioned as part of the classic defensive sectors. Healthcare, along with utilities and food/beverage stocks, is considered defensive because demand for these products and services tends to remain stable even during economic downturns.
-
Worst-Performing Stocks: The article also discusses the poor performance of certain stocks during the 2008 recession, such as American International Group Inc (AIG), XL Group plc (XL), and Genworth Financial Inc (GNW). The commonality among these underperformers is their association with the insurance sector and significant exposure to the U.S. housing market or housing derivatives market.
-
Market Trigger: The three worst-performing stocks had exposure to the housing market, which was identified as the trigger for the 2008 recession. This indicates the importance of understanding the root cause of a recession and its potential impact on specific sectors.
-
Caution for Future Recessions: The article concludes by cautioning investors about potential future recessions. It emphasizes the importance of identifying stocks most exposed to the cause of a recession and suggests that investors with historical perspective and an ability to recognize warning signs will be better prepared to navigate the financial repercussions.
In summary, the article provides valuable insights into the performance of stocks during a recession, emphasizing the significance of defensive plays and the impact of specific market triggers. The historical perspective offered serves as a guide for investors in anticipating and managing risks during challenging economic times.
