The Recession Playbook: Three Strategies for Investors

The Recession Playbook: Three Strategies for Investors
Concerns about the economy and trouble in the U.S. banking sector have led to increased market uncertainty.
Before this began to surface, several factors were driving slower returns:
- Inflation: Above-Target
- Interest Rates: Restrictive
- Economic Growth: Below Trend
In this graphic from New York Life Investments, we look at three recession investment strategies that have historically been resilient when the market has faced headwinds.
1. Value Equities
During periods of high inflation and slower growth, value equities have been well-positioned as a recession investment strategy, thanks to the following factors:
- Income generation
- Quality
- High cash balances
- Low correlation to the economic cycle
Value equities include the four most traditional “defensive” sectors, whose earnings are less correlated to economic cycles:
- Real Estate
- Utilities
- Consumer Staples
- Health Care
Not only have these sectors tended to be more resilient in downturns; cash flows from these sectors have been often positively correlated with inflation.
A moderate equity allocation to value equities within a diversified portfolio could help provide resiliency during times of above-trend inflation and below-trend growth.
2. Commodities
In today’s geopolitical landscape, there are a number of factors that may support the commodity sector, including:
- Energy independence
- China’s reopening
- Minerals and metals to fuel green energy
With this in mind, here’s how investors may integrate commodities into their portfolio.
Traditional 60/40 | Sample Commodities Satellite Portfolio | |
---|---|---|
Equities | 60% | 55% |
Bonds | 40% | 40% |
Commodities | 0% | 5% |
As the above table shows, the commodities satellite portfolio represented a 5% exposure to commodity firms in the portfolio.
Next, when looking back over a 25-year period, a hypothetical portfolio with a 5% allocation to commodities had a stronger risk-adjusted return than a traditional portfolio. This can be seen in its Sharpe Ratio, which measures the risk-adjusted returns of a portfolio. A higher number is considered better.
Risk Metrics (Jan 1998-Oct 2022) | Traditional 60/40 | Sample Commodities Satellite Portfolio |
---|---|---|
Sharpe Ratio | 0.96 | 1.02 |
Average Drawdown | -4.2% | -3.7% |
Given these factors, commodities may be positioned for strength.
3. Infrastructure
Infrastructure equities present key benefits as $1.3 trillion is projected in government spending over the next decade across energy, transportation, and broadband sectors.
Here are a few key drivers supporting infrastructure as part of a recession investment strategy:
- High government spending
- Cash flows may be correlated with inflation
- Potentially more stable returns vs. alternative assets
Below, we show how investors can incorporate infrastructure into their portfolios.
Traditional 60/40 | Sample Infrastructure Satellite Portfolio | |
---|---|---|
Equities | 60% | 50% |
Bonds | 40% | 40% |
Infrastructure Equities | 0% | 10% |
As we can see, the infrastructure portfolio included a 10% allocation to stocks in the sector. Compared to a traditional portfolio, a portfolio with an infrastructure component had improved risk metrics between the period of January 1998 and October 2022.
Risk Metrics (Jan 1998-Oct 2022) | Traditional 60/40 | Sample Commodities Satellite Portfolio |
---|---|---|
Sharpe Ratio | 0.74 | 0.76 |
Average Drawdown | -4.5% | -4.3% |
Moreover, the infrastructure sector has been resilient when the market slides. For instance, the Dow Jones Brookfield Global Infrastructure Index outperformed the S&P 500 Index by a wide margin in 2022, 2008, and 2000 when the market faced increased turmoil.
In this way, infrastructure equities may present opportunities for investors looking to diversify their portfolios, especially as a recession investment strategy.
Remaining Resilient With a Recession Investment Strategy
Together, these three strategies may provide investors with more resilience regardless of the stage of the economic cycle:
- Value Equities
- Commodities
- Infrastructure
Thanks to each of their specific attributes, investors can equip themselves with a recession investment strategy that may help offset the unexpected swings of the market cycle.

Learn more about all-weather strategies with New York Life Investments.

-
Economy1 day ago
Mapped: The State of Economic Freedom in 2023
How free are people to control their own labor, property, and finances? This map reveals the state of economic freedom globally.
-
Markets2 days ago
The Fastest Rising Asset Classes in 2023
Asset classes vary widely by returns so far in 2023. Which ones are the best-performing, and is a bull market on the horizon?
-
Markets2 days ago
Ranked: America’s Largest Semiconductor Companies
This graphic visualizes the market capitalizations of America’s 15 largest semiconductor companies.
-
Debt3 weeks ago
Charting the Rise of America’s Debt Ceiling
By June 1, a debt ceiling agreement must be finalized. The U.S. could default if politicians fail to act—causing many stark consequences.
-
Markets3 weeks ago
Ranked: The World’s Top 50 Endowment Funds
Endowment funds represent the investment arms of nonprofits. See the worlds top 50, which collectively have over $1 trillion in assets.
-
United States3 weeks ago
Visualizing the American Workforce as 100 People
Reimagining all 200 million of the American workforce as 100 people: where do they all work, what positions they hold, and what jobs they do?