Exploring Resilient Stocks Amid Market Uncertainty

Following months of cautious optimism built on a tech stock resurgence driven by the emergence of generative AI technology, August has served Wall Street with a timely reality check as markets record their worst week since Q1 2023. 

To make matters worse and heighten investor jitters further, Michael Burry, the investor who infamously predicted the 2008 market crash, revealed that he’d bet $1.6 billion on another collapse by the end of the year.

According to Bank of America investment strategist, Michael Hartnett, sentiment in the may be set to flip from ‘buy the dip’ to ‘sell the rip’. 

At the heart of a recent Bank of America Global Research report, Hartnett noted that Wall Street trends could go the way of Microsoft, which had been suffering a sustained decline over the past month despite acting as a driving force in the recovery of the S&P 500 throughout the first half of the year. 

Microsoft’s recent trend reversal threatens to undo much of its price accumulation throughout 2023, and given that Wall Street experienced impressive growth off the back of the generative AI boom at the beginning of the year, Microsoft’s reversal in fortunes as a major player in the field of AI could be particularly worrying. 

Combatting Global Headwinds

While much market uncertainty has been drawn from the whims of the Federal Reserve and its plans for future interest rate hikes to combat inflation, there’s plenty of evidence that the ongoing downturn has been triggered by many global events.

If Michael Burry’s gamble on an upcoming financial crash wasn’t enough for a sense of deja vu, the news that a Chinese investment trust missed payments to corporate investors in a move that some believe could cause the nation’s property market to trigger a financial crisis may seem like a case in point of history repeating.

At present, three Chinese companies, Nacity Property Service, KBC Corporation and Xianheng International Science and Technology have claimed in separate stock exchange filings that Zhongrong Trust failed to pay interest and principal due on many different investment products amounting to a total of 110 million yuan, or $15 million. 

With an estimated $87 billion worth of funds under management by Zhongrong Trust for their corporate clients and wealthy individuals, comparisons to the bankruptcy of Lehman Brothers have come thick and fast in the west, but is there any way for investors to keep their portfolios safe in the wake of a global downturn? 

While a financial crash on a similar scale to 2008 would be a challenging environment for investors to find any form of resilience, there are certainly measures that can be taken that are designed to keep portfolios protected on a long-term basis. 

“Retail investors often look for stocks that exhibit certain characteristics associated with relative stability and resilience in the face of market uncertainty,” explained Maxim Manturov, head of at Freedom Finance Europe.

“Some examples of stocks that are generally considered relatively safe to invest in include defensive stocks. These are companies that provide essential goods or services that people tend to continue to use even during economic downturns. Examples include companies in sectors such as basic necessities, utilities and healthcare.”

With many blue chip tech stocks struggling to build on their impressive progress in Q3 2023, it may be worth investors seeking to add more exposure to defensive stocks should a market downturn really become exacerbated by events in China. 

Building a Defensive Portfolio

While there’s certainly no guarantee of durability or performance in any market when it comes to Wall Street, investors can certainly help to boost their chances of protecting their portfolio by adding defensive stocks ahead of a suspected downturn.

Essentially, defensive stocks or recession stocks, have been proven to sustain growth or limit their losses during an economic downturn because their services are always in demand. 

With this in mind, some of the best defensive stocks can include consumer staples, utilities and healthcare firms which consumers will always be willing to use even if the economic climate continues to suffer. 

For investors seeking to add defensive stocks to their portfolio, some leading opportunities include: 

1. Costco (COST)

As we can see from Costco’s recent stock market performance, the stock performed exceptionally well during the economic shock of Covid-19 and has generally performed well even in the wake of widespread market sell-offs throughout 2022. 

Supporting Costco’s market movements has been a loyal customer base that sought to stop non-essential spending during downturns while continuing to make their essential purchases at reputable low-cost retailers like Costco. 

It’s also worth noting that Costco has plenty of room for future growth. As recently as 2022 the company saw memberships grow by 7% amidst the year’s challenging economic climate, offering an insight into customer priorities when uncertainty looms. 

2. Johnson & Johnson (JNJ)

Despite more understated growth throughout recent years, Johnson & Johnson is an example of another stock that’s relatively durable in the face of a downturn. Furthermore, the company may hold excellent long-term potential for investors. 

With global health spending per person projected to rise to unprecedented levels by 2050, Johnson & Johnson could be key beneficiaries of this new emphasis on healthcare and MedTech. 

As a dividend-paying stock, Johnson & Johnson is well positioned to be a great stock to provide a passive income for investors should a sustained market downturn impact less-resilient stocks. With the company’s consumer wellness firm, Kenvue also improving its operational structure in recent months, it’s certainly worth considering JNJ as a solid long-term hold. 

3. Duke Energy (DUK)

When it comes to investing in utility companies as a defensive option, there are few better-positioned stocks than that of Duke Energy Corp. As one of the United States’ largest energy holding companies, Duke serves around 7.2 million retail electric customers throughout six states. 

Crucially, Duke Energy is a useful defensive stock because it holds a natural monopoly across the states it serves. This is down to the exceptionally high barrier to entry that other utilities companies are simply too wary of taking a gamble on. 

With energy in constant demand and the expectation that digital transformation will see users continue to increase their energy consumption over the coming years, DUK appears to be a solid option to add to investor portfolios. 

Although the prospect of another Lehman Brothers scenario hitting global markets would lead to an extremely challenging market downturn, there are certainly ways in which investors can manage their portfolios more effectively during periods of economic uncertainty.

As always, it’s essential to conduct plenty of market research before adapting portfolios to accommodate new stocks. No matter how resilient defensive stocks can be, it important to consider the state of the market as a whole before making any additions. Through a measured approach and a healthy level of research, it’s possible to safeguard your wealth at a time when market volatility could reign supreme.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

COST JNJ DUK

Other Topics

Markets Investing