Trade Stocks in a Recession with three simple investing tips. Throughout this stock trading guide, we’re going to teach you where to put money during a recession. If you want to survive the coronavirus stock market crash stay tuned for our best stock trading strategy in recession.
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While the coronavirus stock market crash is reminiscent of the 1929 crash and the Great Depression, this represents an opportunity to buy cheap stocks. When a recession hits the market, most stocks will suffer no matter how strong fundamentals they have.
When the stock market crashes, stock value goes down and when stock prices go down, that’s the best time to buy stocks cheaper. So, it’s totally possible to still make money in a recession.
What is a Stock Market Recession?
In technical terms, a recession is a period of a massive slowdown of the GDP growth rate. In macroeconomics, a technical recession happens when the GDP growth rate is negative for at least two consecutive quarters or 6 months.
We can also define a recession as a contraction in output employments, investments, and confidence.
Now, you might be wondering:
What causes an economic recession?
Several factors can cause a recession, including:
- Domestic factors (monetary and fiscal policies, a rise in taxation, big fall in different asset classes)
- Or external factors
Moving on Our team of experts will lay down some recession-proof stocks to buy.
Where to put Money During a Recession?
The foundation of making money when the stock market crashes or in any other type of investing is to study the past.
Here is a stock trading tip:
Compare which stocks have performed well during previous recessions.
For this exercise, we’re going to have a look at the stocks that soared during the financial crisis of 2008.
During the subprime mortgage crisis of 2008, the US stock market lost almost 40% of its value. But even in those dire times, where the majority of stocks plunged, there were some healthy stocks that survived the crash.
Given the coronavirus stock market crash, we’re going to have a look at 5 recession-proof stocks that can survive this bear market.
#1 Recession-proof Stocks: Discount Store Industry
These types of businesses do well during a recession. The retail discount industry will typically see a boost in sales, which typically means bigger profits for the companies and subsequently these stocks can beat all other S&P 500 stocks.
Here is a list of retail stocks to keep an eye on during the 2020 recession:
- Dollar General (NYSE: DG) – during the 2008 crash DG rose more than 60% and since the middle of March 2020, it’s up the stock is up more than 38%
- Walmart (NYSE: WMT) – since the COVID – 19 outbreak, Walmart stock is up more than 19% from its March’s low
- Dollar Tree (NYSE: DLTR) – With a gain of over 60% return in 2008, Dollar Tree is another recession-proof stock that can withstand today’s coronavirus bear market
Other stocks that will survive the coronavirus crash are the biotech and pharmaceutical stocks.
#2 Recession-proof Stocks: Health Care Industry
Biotech company Amgen (NYSE: AMGN) was among the best-performing stocks in 2008, gaining as much as 24.3% by the end of that year. During the COVID-19 stock market crash, Amgen has gained roughly 24% since its March low.
Moving on Here is the next idea where to put money during a recession.
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#3 Recession-proof Stocks: Delivery Services Industry
With over 3 billion of the global population in lockdown due to coronavirus quarantine, the home delivery services industry has become an essential component of our society. The biggest courier companies in the USA are UPS Inc. closely followed by FedEx Corp.
When we can learn something from the stock market history, it’s best to pay attention. Stock investors looking to pick healthy stocks can start first by including the above-mentioned names in their portfolios.
How to Trade Stock In a Recession?
A study has been conducted to assess the past six recessions and revealed that if you invested in the Dow stocks during those recessions only during the 1980 recession the portfolio value would have made profits by the end of the recession.
Now, you might be wondering ,The straightforward method to trade stock in a recession is by short selling.
You can make money when stock prices go down by short selling. Actually, stock day traders can make money both ways, when the stock price goes down and when the stock price goes up. Finding good stocks to hold and make profits during a recession is pretty hard.
Alternatively, buying dividend stocks can become another profitable method to invest during a recession. Dividend stocks can provide a good source of passive income during times of a recession.
You can also use Google Trends for stock picking. More on this topic you can learn with our guide here: Google Trends Trading Strategies – How to Beat the Crowds.
However, by far the best stock trading strategy in a recession is day trading. In a typical recession, stock investors will experience more volatility, which is the perfect paradise for day traders. Stock day traders will continue to see volatility as the uncertainty around the coronavirus persists.
One major characteristic of a bear market is high volatility compared to bull stock markets.