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.
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.
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