If you own any investments, you probably had the same moment as me this morning when you realized you’d lost a lot of money and it wasn’t even noon. So far today I’ve watched my personal portfolio fall by a little over a percent, and the S&P is down more than 1.5%.
This drop-off was probably precipitated by the news that Donald Trump allegedly fired FBI Director James Comey in order to stall investigation into former national security adviser Michael Flynn’s ties to Russia, and that even some Senate Republicans are beginning to use the “i” word. This turn of events signals a potential coming period of political instability, during which Congress won’t have much time to pass the tax reform it’s been talking so much about.
There’s been much talk of an impending correction, but there’s no special reason to believe that it’s going to start this month or even this year. Certainly, we’ve seen bigger hits than today several times throughout the past year or several. It is more than likely, though, that a recession will come some time during the Trump administration, potentially initiated by political uncertainty, so now might be a good time to brush up on how to deal with it when the time comes.
Just because the S&P or the NASDAQ goes down doesn’t mean that all investments will. In particular, profitable companies who sell important consumer necessities that don’t stop getting sold during recessions, companies like Unilever (UL), Kimberly-Clark (KMB), Colgate-Palmolive (CL) and Johnson & Johnson (JNJ), tend to more or less keep doing what they were doing and outperform the market in aggregate. Healthcare companies like CVS Health (CVS), Masimo (MASI), and Medtronic (MDT) behave similarly. Companies like these are likely to take an immediate downturn with the rest of the market as investors get cold feet but recover more quickly.
But how can we make money even during the initial downturn? A good bet is in traditional safe-haven commodities, the king of which is certainly gold.
Granted, in the long term gold is a terrible investment, not even keeping up with inflation. But in the short term, the price of gold typically goes up during and immediately after a recession as people seek an alternative to risky securities. As the chart above shows, gold and the securities market usually mirror one another’s bumps and turns. Gold is also a close inverse of the US dollar’s value on the currency exchange market.
What you really don’t want to get caught holding are speculative companies with low to no earnings, like Tesla (TSLA), Idexx (IDXX), or Take-Two (TTWO), or companies that sell longer-term purchases like automobiles, which consumers wait until good economic times to buy (I love my position in GM but it might have to go soon….)
And of course, you can always bet against the market with shorts or puts. If you’re feeling especially dangerous.