Our wallets may be telling us we’re already in a recession, but officially we’re not there yet.
The National Bureau of Economic Research’s definition of “a significant decline in economic activity that is spread across the economy and lasts more than a few months” has enough wiggle room and gray area to push a formal declaration further out into the future. Though a number of economic indicators suggest a recession will hit sooner rather than later, we may have just gotten our clearest sign yet the good times could be over.
Image source: Getty Images.
Hunkering down for the storm
Last Wednesday, Amazon (NASDAQ: AMZN) told employees that because of “an unusual and uncertain macroeconomic environment,” it was going to immediately begin laying off as many as 10,000 or more workers. That news was followed by FedEx (NYSE: FDX) saying it would also be letting employees go in its FedEx Freight less-than-truckload division, a last-mile service that delivers bulky items to consumers.
While we’ve seen tens of thousands of employee departures from tech companies like Meta, Snap, and Twitter in recent weeks, the back-to-back announcements by Amazon and FedEx are especially worrisome because they’re happening just before Christmas.
The holiday season, of course, is retail’s busiest season. It’s the time of Black Friday sales, Cyber Monday, and round-the-clock store shopping. According to the National Retail Federation, we’re supposed to see a record 166.3 million people shopping the five-day period between Thanksgiving Day and Cyber Monday.
It’s also when the focus is on massive seasonal hiring efforts. In years past, Amazon would hire 100,000 or more temporary employees and FedEx would bring on tens of thousands of new workers. Indeed, Amazon said last month that it would in fact hire 150,000 temps this year, but the fact that it is coupling those new hires with layoffs — the largest number in the company’s history — means this year is unlike any other. Moreover, FedEx didn’t give its usual release on its seasonal hiring plans, and executives said the company would hire fewer seasonal workers for 2022 than in past years
Because we’re getting the biggest online retailer and a major shipping company letting some of their people go, it’s the clearest sign a recession could be coming, if not here already — and that shouldn’t be ignored.
Image source: Getty Images.
Not just any port in a storm
What should an investor do? So long as you don’t need the money to pay your bills or for emergencies, and don’t plan to touch it for at least five years — better if it’s 10, and ideally decades or more — stocks can, and arguably should, continue to be an integral part of your recession-investment strategy.
In 2008, during the so-called Great Recession when the S&P 500 lost 38% of its value, there were still a lot of winning stock investments.
- Toymaker Hasbro gained 14% as consumers shied away from expensive video games and gadgets in favor of timely, simpler, and more affordable board games.
- Auto parts retailer AutoZone soared 16% because people held onto their cars longer and fixed them themselves.
- Dollar Tree rocketed 60% higher as consumers pinched pennies and found the deep-discount dollar store chain a way to stretch their wallets.
- Similarly Walmart (NYSE: WMT) jumped 18% because its everyday low prices consistently provided consumers with good value.
- Amgen jumped 24% as investors turned to a safe-haven sector like healthcare during troubled times as it produced critical drugs for cancer, anemia, and other illnesses.
We’re likely going to see many of the same trends play out this time around, too. Walmart, for example, just reported robust earnings, because even well-heeled shoppers were going down market to buy lower-cost groceries from its supercenters. Dollar Tree’s stock is running 16% higher this year, likely for the very same reasons as last time.
Investing during a recession
The specific stock doesn’t matter per se — the important thing is to not hide your head in the sand until the storm blows over. Careful selection of companies with good businesses that can weather some turbulence can serve an investor well.
This is a time when previously expensive stocks are finally available at discounts, allowing you to buy low with an eye toward selling high. In short, even in a recession an investor can find opportunity.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, FedEx, Meta Platforms, Inc., and Walmart Inc. The Motley Fool recommends Amgen and Hasbro. The Motley Fool has a disclosure policy.