Inflation and Recession! Can Both Happen Together?
No investor likes the I or R-words.
The I-word being inflation and the R-word being recession.
They certainly don’t get said in my house!
But putting our heads in the sand and pretending everything’s fine never works.
Some recent news has been bad on both fronts.
First came fears of an upcoming recession.
On Tuesday, the results from a consumer confidence survey were released and it wasn’t good.
One of the questions was about consumer expectations over the next 6 months.
27% of consumers expect things to get worse while only 17% think things will improve.
Yikes!
The index for consumer expectations hit a 12-year low.
It didn’t even get that low during COVID!
Click here if you want more details on this survey.
Consumer confidence is really important for economic growth.
Scared consumers don’t spend money!
This could cause an economy’s growth to slow and potentially lead to a recession.
Surprisingly, the market didn’t react to this news and remained flat.
The same can’t be said about the inflation news.
The PCE (Personal Consumption Expenditure) Price Index is one measure of inflation and the results came out on Friday.
Inflation rose by 0.4% in February. That’s not for the year, but just one month!
Inflation was higher than people expected and hasn’t increased this much in over a year.
Now investors started to pay attention with the S&P 500 falling more than 2.0% at one point.
Why was the inflation news so bad?
Inflation was a major problem a few years ago, but we got it under control in 2023.
Now it appears that victory may be short-lived with inflation starting to heat up again.
Couple that with fears of a recession and you can understand why investors are getting worried.
We talked about the I-word and the R-word. Put them together and you get the S-word: stagflation.
Stagflation is when an economy is in a recession AND experiencing high inflation.
It’s a terrible combination because people lose their jobs while products they need are rising in cost.
You might think now is a good time to yell a different S-word!
But there’s no reason to panic.
There are plenty of opportunities out there!
If you’re worried about stagflation then it’s time for defensive stocks.
That means utilities, healthcare, and consumer staples.
People need power, medicine, and food no matter what’s going on with their jobs or how expensive everything gets.
So far in 2025, those sectors have been performing really well.
Source: Select Sector SPDRs
Here are a few companies you should consider to protect yourself from stagflation:
=> Costco (COST) - large US bulk retailer with an extremely loyal customer base. This is a brilliantly managed company that can handle any sort of economic downturn.
=> Johnson & Johnson (JNJ) - founded almost 140 years ago, Johnson & Johnson is a massive pharmaceutical and healthcare company. They’re also one of only two companies with a perfect AAA credit rating.
=> NextEra Energy (NEE) - largest domestic power utility company with operations all over the United States and Canada.
Are you making any moves based on this news? What other companies in the consumer staples, healthcare, or utility sectors do you like?
Let me know with an email!
P.S. Just this morning, Goldman Sachs raised their recession probability to 35% for 2025…
