While the stock market may have experienced its fair share of rallies throughout the first half of 2023 thanks to the rapid boom of artificial intelligence within the technology sector, an imminent recession is not out of the question. In light of this possibility, U.S. News & World Report turned to Dan Tolomay, chief investment officer at Trust Company of the South, for insights on how investors can prepare their portfolios and safeguard their wealth in the case of a recession.
“A recession is defined as two consecutive quarters of negative gross domestic product, or GDP, growth. In other words, if economic output shrinks for a six-month period, it signals an official recession,” says Tolomay. “Lower economic activity can lead to layoffs, as companies try to control expenses in the face of fading revenue, while lesser demand paired with higher unemployment means lower sales. As economic activity slows, companies’ prospects dim, and stock prices follow downward.”
Fortunately, not all investments are equally susceptible to the downfalls of weakening economic activity. Rather, there are asset classes that possess defensive characteristics that make them recession-resistant investments.
“High-quality bonds, like U.S. Treasuries tend to perform better when stocks are declining,” Tolomay tells the publication. “Within the equity market, defensive sectors like consumer staples, health care and utilities may hold up better, as demand for their products and services remains more consistent even in a downturn.”
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