- Here are seven asset classes, including stocks in different industries, that could offer shelter during a bear market
- Blue chip companies are those that investors have typically known for decades.
- Worldwide spending on healthcare should continue to grow during the decade.
- Prices of commodities are expected to remain at historically high levels by the end of 2024.
- Wall Street offer several options to invest in the growth of real estate.
- Utility stocks boast modest but steady growth and above-average dividend yields.
- Cryptocurrency investors should diversify their investments across different digital assets.
- Art and NFT prices can act independently of moves in equities.
It looks like Wall Street is bracing for a bear market. Macroeconomic headwinds continue to build, including rampant inflation, slowing economic growth, geopolitical turmoil, and Covid-19 lockdowns in Asia.
We now have further uncertainty surrounding the stock market following the most recent interest rate hike. An imminent bear market is potentially on the horizon. As a result, investors are searching for alternative investment paths for diversification.
Growth names that were the darlings on Wall Street during the pandemic have not been immune to these challenges so far in the year. Even large-capitalization (cap) shares have come under pressure since January.
Year-to-date (YTD), the S&P 500 index has so far dropped over 13.5% year-to-date (YTD), while the tech-heavy Nasdaq 100 has declined more than 21.5% during the same period.
In the past century, we have had over 25 bear markets on the Street. Most have lasted an average of less than one year. While it may be tempting to sell stocks in the portfolio to minimize losses, panic selling in a bear market often leads to loss of potential profits and even investment capital.
Instead, investors need to develop a calmer and at times opportunistic perspective toward bear markets. Let’s remember that some of the strongest days in the stock market usually follow right after some of the most devastating days.
A bear market can be easier to endure when you’re well-diversified and in the market for the long term.
With that information, here are seven strategic sectors and asset classes to hide your money in a bear market.
| Blue Chip Stocks |
| Healthcare Stocks |
| Commodities Stocks |
| Real Estate Stocks |
| Utility Stocks |
| Cryptocurrency |
| Arts and NFTs |
Bear Market: Blue Chip Stocks
“Blue chip stocks” are some of the precious gems of the stock market. As most InvestorPlace.com readers know, the term comes from poker chips where the blue chips are the most valuable ones of a three color chip set.
Blue chip companies are those that you have possibly known for decades. Market caps are typically in the order of hundreds of billions of dollars. The company history goes many decades or even a hundred years. Most of the 30 stocks in the Dow Jones Industrial Average (DJIA) index belong to a blue chip company.
If you like dividends, then blue chips should be on your radar screen. They typically grow dividends regularly over decades.
Daily swings are less of an issue in the case of blue chips. Especially due to stable dividends, most investors are reluctant to sell them when the market declines.
Since most blue chips have healthy balance sheets and strong leadership, they tend to come out of hard economic times even stronger. In fact, many either buy-out or drive-out their weaker competitors.
But, when we have a bear market, shares of blue chips also decline. For instance, the DJIA has lost around 10% so far in 2022. Yet, this percentage is less than those in the S&P 500 and the Nasdaq 100.
Yet this recent drop in price has made many blue chips undervalued, creating a buying opportunity. If readers are not sure as to which specific blue chip stock to buy, they can also consider blue chip exchange-traded funds (ETFs) that hold a basket of stocks.
The following names of stocks and ETFs can be considered when investing in blue chips:
- International Business Machines (NYSE:IBM)
- Pfizer (NYSE:PFE)
- Walmart (NYSE:WMT)
- T. Rowe Price Blue Chip Growth ETF (NYSE:TCHP)
- Invesco Dow Jones Industrial Average Dividend ETF (NYSE:DJD)
Healthcare Stocks
With growing concern about the possibility of a coming recession, many investors are turning to defensive healthcare stocks. The healthcare market tends to remain fairly resistant to market downtowns. After all, as the past two years have shown, anyone can get sick or become injured at any time.
Globally, the healthcare industry continues to grow, spurred by an aging population. We are witnessing continuous development of new medicines and treatment protocols. Worldwide spending on medicine is expected to grow to an average of over 10% of global GDP by the year 2030.
At the same time, Covid-19 vaccines are likely to soon find an entire new category of patients: children under 5. The Washington Post recently reported that the Food and Drug Administration (FDA) is currently considering an authorization request from Moderna (NASDAQ:MRNA) for use of its vaccine for young children. Pfizer is also expected to make a similar request soon.
Healthcare stocks or ETFs could thus provide a potential safe haven for wary investors. Here are a few picks:
- Abbvie (NYSE:ABBV)
- Bio-Rad Laboratories (NYSE:BIO)
- Merck (NYSE:MRK)
- Novo Nordisk (NYSE:NVO)
- Thermo Fisher Scientific (NYSE:TMO)
- iShares Global Healthcare ETF (NYSEARCA:IXJ)
- Health Care Select Sector SPDR Fund (NYSEARCA:XLV)
Bear Market: Commodities
Analysts are increasingly convinced that we are at the start of a long-term structural bull market in commodities. The World Bank’s Commodity Markets Outlook report suggests that the Russian invasion of Ukraine has changed the discourse on commodities.
Changing global patterns of production, trade, and consumption could keep commodity prices at historically elevated levels by the end of 2024. Moreover, such high commodity prices should add to the inflationary pressures worldwide.
Energy prices are of particular interest to investors. Brent crude is currently trading at around $100 per barrel. And the Dow Jones Oil & Gas Index has soared more than 45% year-to-date (YTD).
Moreover, food commodities and fertilizers, which rely on natural gas as a production input, have also seen the largest price increases since 2008. For example, wheat prices are projected to increase by over 40%, reaching an all-time high in 2022.
Another group that gets attention as a potential hedge is precious metals. Gold and silver are the traditional metals of choice. Yet, copper, platinum, palladium, nickel, and zinc are also sought by investors in times of uncertainty in the markets.
Commodities not only offer an effective hedge against inflation, but they also help diversify investors’ portfolios due to their low correlation with stocks. Gold, for example, tends to be inversely correlated to both stock market performance and the value of the greenback.
Silver has often provided a good investment during periods of high inflation. Its value is often tied to its utility in certain applications in technology as well as heavy industry.
The price of gold is up 2.1% over the past year, while the price of silver is down 18.2%. Meanwhile, prices of platinum and palladium are also down year-over-year.
Investors can either buy individual stocks or invest in ETFs for commodities like energy, agriculture, and metals.
The following names deserve further due diligence:
- Archer Daniels Midland (NYSE:ADM)
- Barrick Gold (NYSE:GOLD)
- Franco-Nevada (NYSE:FNV)
- Newmont (NYSE:NEM)
- Nucor (NYSE:NUE)
- Rio Tinto (NYSE:RIO)
- BHP (NYSE:BHP)
- Freeport McMoRan (NYSE:FCX)
- SPDR S&P Metals and Mining (NYSEARCA:XME)
- Invesco DB Commodity Index Tracking Fund (NYSEARCA:DBC)
- iShares GSCI Commodity Dynamic Roll Strategy ETF (NASDAQ:COMT)
Real Estate Stocks
Investing in real estate is another option to protect your savings against inflation or volatile markets. It also provides consistent income over a long period.
Participating in real estate investment comes in various ways. You can always buy your own private real estate, and possibly at a lower price during an economic slowdown. Of course, you’d need to have the necessary amount of money ready for the transaction. Or you could go to Wall Street to participate in the growth of real estate shares and for less capital.
Stock markets offer several options to invest in real estate. These can be shares of builders and developers or Real Estate Investment Trusts (REITs). The latter are companies that own, buy, sell or manage real estate. REITs usually hold a diversified or specialized portfolio. In the U.S., by law, they have to distribute about 90% of their income as dividends to qualify as a REIT.
Retail investors can go for the shares of either individual developers or REITs. Or they can also explore ETFs that are focused on real estate.
The following stocks and ETFs can be considered when investing in real estate:
- Avalonbay Communities (NYSE:AVB)
- Lennar (NYSE:LEN)
- VICI Properties (NYSE:VICI)
- Welltower (NYSE:WELL)
- Schwab US REIT ETF (NYSEARCA:SCHH)
- Vanguard Real Estate Index Fund ETF Shares (NYSEARCA:VNQ)
Bear Market: Utility Stocks
Utilities are often regarded as the defensive and less volatile portion of an investment portfolio. They include electricity, natural gas, clean water, and sewage services. Understandable, businesses and households rely on them regardless of economic cycles.
Even during a recession, consumers will, for the most part, pay their bills for power and water. As most utilities are highly regulated, effectively preventing rivals from entering the market, utility stocks are usually associated with low risk and stable investments.
The outlook for utilities has significantly improved over the past few years. President Biden has made the renewable energy transition a key focus of his administration, setting the target for a carbon-free power industry by 2035.
According to a recent report from the International Energy Association (IEA), renewables are expected to account for almost 95% of the increase in global power capacity through 2026. As a result, we are likely to see hundreds of billions of dollars of investment flow to the utility space to achieve global decarbonization goals.
Earlier in March, the Dow Jones Utility Average briefly crossed the 1,000 mark for the first time in its nearly 100-year history. It’s difficult to top utility stocks for modest but steady growth and above-average dividend yields.
Against this backdrop, investors could keep the following utility stocks under their radar:
- Enbridge (NYSE:ENB)
- Dominion Energy (NYSE:D)
- Duke Energy (NYSE:DUK)
- NextEra Energy (NYSE:NEE)
- Fidelity® MSCI Utilities Index ETF (NYSEARCA:FUTY)
- Utilities Select Sector SPDR® Fund (NYSEARCA:XLU)
- Vanguard Utilities ETF (NYSEARCA:VPU)
Cryptocurrency
2022 has been a tough year for the cryptocurrency market. So far in the year, Bitcoin (BTC-USD) and Ethereum (ETH-USD) have declined almost 28% and 32%, respectively. Similarly, the Global X Blockchain ETF (NASDAQ:BKCH) has lost over half its value YTD.
Analysts agree that many altcoins will not make it in the long run. Furthermore, some individual cryptos will likely experience even larger declines in a prolonged bear market.
However, if investor portfolios are diversified, they will be able to stay in the market, weather the storm, and capitalize on profit opportunities. In a bear market, crypto investors should diversify their investments across large-cap market digital asset leaders, fast-growing new cryptos, non-fungible token (NFT) cryptos, decentralized finance (DeFi) coins, and stablecoins.
Smart investors can potentially endure bear markets through dollar cost averaging, which involves making small periodic purchases without committing to a single large purchase. Such an approach could help smooth out price volatility. As a result, investors can build a portfolio according to a time-based average price.
Well-established cryptos have weathered market downturns in the past and more than regained their values. Moreover, many altcoins are associated with critical technologies like blockchain oracles, cross-chain commerce, and consumer entertainment. As a result, those cryptos can continue to deliver financial rewards in the near future.
In addition to Bitcoin and Ethereum, the following cryptos could also be of interest to readers:
Those readers who are looking for potential stocks or ETF to participate in the growth of the cryptocurrency market could also consider:
- Coinbase Global (NASDAQ:COIN)
- Grayscale Future of Finance ETF (NYSE:GFOF)
- Invesco Alerian Galaxy Crypto Economy ETF (NYSEARCA:SATO)
- ProShares Bitcoin Strategy ETF (NYSEARCA:BITO)
Bear Market: Art and NFT Markets
The art market could provide an alternative path to portfolio diversification during a bear market. Furthermore, art prices exhibit a low correlation with other asset classes and may outperform the stock market during market downturns.
Following its biggest recession in 10 years in 2020, the global art market recovered strongly in 2021, according to the latest annual Art Basel & UBS Global Art Market Report. Aggregate sales of art and antiques by dealers and auction houses reached went over $65 billion, up by 29% from 2020.
Thus, sales values have even surpassed pre-pandemic levels of 2019. This boom was primarily fueled by art investors from the U.S., with 43% of worldwide sales by value. Greater China was the second-largest art market with 20%.
Art serves as a store of value during periods of high inflation. With the number of high-net-worth individuals increasing worldwide, art prices have the potential to grow tremendously. Research by Deloitte suggests that art investing should grow by over 40% by 2026.
In addition, NFTs are now widely used to represent any object considered unique or rare, including a work of art, music score, or even a book. NFTs are minted, stored, and then transferred on a blockchain. Thus they offer instant and continuous proof of authenticity and origin.
There are different platforms for readers interested in buying art or NFTs. In addition, the Defiance Digital Revolution ETF (NYSEARCA:NFTZ) could be of interest to potential investors.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.