Where Not To Invest During Recession

We have already covered in previous videos which sectors do well and where to invest during a recession.  Watch: Recession Invest

Equally, we need to understand where we should not be investing during a recession.

• Inflation is high across the UK, USA, Europe and globally.   It highest in 40 years
• Interest rates are starting to be increased by central banks to try and curb inflation.  That said, they are no where near average interest rate levels yet.
• Wages are not growing as quickly as inflation.  The gap between consumers prices inflation and wages inflation is at his biggest differential in over 10 years.
• We are becoming poorer with less spending power.  Our spending habits are changing.

The Wealthy – Capital or Income Affluent

People with significant spare income or capital will generally not alter their spending habits too much.  We need to think about how ‘middle’ and lower income households will change their spending habits.

Average Income Households

A household with an average or lower income, i.e., the vast majority of UK households will and have already started to change their spending habits.  Where will the changes be?

• Premium supermarkets will be swapped for discount stores.
• New build and estate agency firms will suffer as property prices stagnate or fall.  More will be spent on DIY and home improvements.
• Premium food and restaurant chains will suffer as takeaway food chains and local businesses prosper.
• Long haul, luxury holiday firms and cruises will suffer with short haul holiday firms and countries like Spain benefitting.
• Subscription based firms such as TV, music and gyms will suffer.
• ‘On trend’ or luxury drinks firms such as the current trend for artisan gins, whisky and rums will suffer as demand moves back to basic brands, supermarket buys and home consumption.
• Online shopping will move to essentials only rather then easy, impulse buys.
• New car demand has already fallen.  Demand for 2^nd hand cars and car parts firms for self maintenance will grow.
• Financial services firms may suffer with people able to save less as well as less ‘paid for’ advice will be taken.
• Insurance firms will suffer.  People will cut costs on what they believe to be non-essential insurance e.g., pet insurance.

In addition, countries become more insular as people and businesses buy cheaper goods and services locally.  We expect large company stocks in the FTSE 100 and Dow Jones to suffer but remain stable as they are usually global traders with smaller and mid-sized more internal market firms such as FTSE 250, 350 and S&P 500 wil suffer initially but then come back strongly.

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