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Economic news was a lot more fun to follow when we were rejoicing over unemployment lows and stock market highs. Ah, early 2020, how we loved you. But, sorry, folks, the party’s over in most places as the economy has been gutted, leading to massive job losses, shuttered businesses and a turbulent stock market.

While there are some sectors that are traditionally recession proof, many sectors are in for bleak news. If you’re currently job hunting or continuing to invest during this recession (fist pump!), there are some industries to be wary of as the economic crisis deepens, which we share below. But, first let’s take a quick look at the economy today to see what we can expect.

Which industries are most affected by a recession?

Who’s feeling the most pain and where might it linger? Given the current climate, it’s not hard to guess which industries are among the hardest hit, partly because of consumers’ dwindling income, but also because of shelter-in-place restrictions. Even as those are lifted, we are looking at social distancing and other potentially onerous precautions for the foreseeable future. 

Let’s take a look at some sectors that have historically fared poorly in a recession and where demand might be particularly weak this time around.

Retail

Typically most people cut discretionary items from their budgets in a recession, which leads to downturns in almost every sector of retail—with the exception of discount purveyors, big box stores and anything related to DIY. And this time around, many brick-and-mortar stores that were already in a slump prior to the pandemic may stay closed for good.

Restaurants

While many restaurants have pivoted to takeout and delivery, even those that have mastered the concept are barely hanging on. And when restaurants are officially reopened, the combination of the public’s reluctance to venture out and drastically reduced capacities could cause restaurants to suffer reduced revenue for some time to come.

Leisure and hospitality

While these sectors have been hit particularly hard today, they usually don’t fare well in any recession. Adding to the misery are the cancellations of industry events and conferences, as well as social events like weddings and graduation parties, which make it hard to see these industries rebounding anytime soon. Movie theaters, casinos and other venues that often draw large crowds are also suffering. 

Manufacturing & Warehousing

While some types of products could see a surge in demand, many others could take a beating as supply chains crumble and demand for goods slows. Output could also be threatened by the need for social distancing.

Real Estate

Eventually, most recessions plunder the housing market, which involves real estate agents, mortgage lenders and everything connected to construction, from workers to suppliers. Commercial real estate could also dip as office workers continue to social distance and possibly embrace remote work for the long term.

Should a recession affect how you invest?

So…after that deluge of doom-and-gloom, let’s look to some good news. Even if your current portfolio is in tatters, that doesn’t dictate a dismal future. Here’s a fact to cling to: Despite the severity of any past downturn, markets have always recovered, and in many cases, they have seen a monster rebound.

So while it’s important to take some defensive measures, ditching a commitment to diligent investing could be the worst thing you could do. After all, while we are living through our share of pain, you want to avoid extending it by making moves now that you are liable to regret in your future.

Here are some steps you can take to maintain your investment discipline: 

  • Seek a diversified portfolio, by investing in different asset classes, which can be particularly important in a precarious market. One great way to get exposure to a variety of investment products is by investing in mutual funds and exchange-traded funds (ETFs). 

  • “Rebalance” your portfolio by seeing which of your investments have been particularly affected and aiming to get them back in line with your preferred investment ratio. So for example, if you typically have a more aggressive portfolio, you might have decided on a 75/25 split of sharess (more aggressive) and bonds (more conservative). With the stock market down, those shares might have sunk to become just half of your portfolio. If you want to stick with your initial strategy and return to that split, you’ll need to sell bonds and buy shares to get back to that 70/30 ratio.

  • Continue buying investments while they can be had for a bargain. Don’t we all love a sale? While it requires fortitude, viewing low share prices the same way you might appreciate a designer shirt at a sample sale can result in some great buys. 

  • Conversely, avoid locking in losses. While buying low can eventually send your retirement account soaring, selling low can decimate it. If at all possible, hang on, while making tweaks that can put you in a better position to enjoy the rebound ride.

 

While the health and financial scars of COVID-19 may linger for longer than we’d like, eventually they will fade. It’s smart to prepare now for a future where a stronger job market and share market awaits.

This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The Economy

Which industries are most affected by a recession?

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