Building a Resilient Portfolio: Which Stock Categories Weather Economic Storms Best?

As economic uncertainty looms in 2025, major financial institutions have significantly ramped up their recession forecasts. Goldman Sachs raised its one-year economic downturn probability to 45% from 35% in early April, while JPMorgan elevated its assessment to 60%, citing ongoing trade tensions and potential tariff impacts. These elevated odds—mostly ranging between 40% and 60% across Wall Street—suggest investors should carefully evaluate their portfolio composition.

The Case for Defensive Investment Strategies

When economic headwinds arrive, not all stocks perform equally. Historically, certain categories demonstrate remarkable resilience and can even generate gains during downturns. These “defensive” or economically resilient investments share a common trait: they provide goods and services people continue purchasing regardless of economic conditions.

The primary resilient stock categories include:

Essential Consumer Services: Companies supplying necessities like food, beverages, and personal care products maintain steady demand during economic contractions. Retailers emphasizing affordability particularly benefit as cost-conscious consumers redirect spending toward discount channels.

Utility Sector: Water, electric, and gas providers offer predictable revenue streams backed by regulatory frameworks. These aren’t merely “safe” holdings—they’ve demonstrated the capacity to outperform the broader market over extended periods.

Healthcare and Pharmaceuticals: Medical services and drug manufacturers remain essential regardless of economic cycles, as people prioritize health expenditures.

Precious Metals Mining: Gold and silver stocks serve as inflation hedges and currency-value safeguards, traditionally strengthening during economic uncertainty.

The “Small Indulgence” Phenomenon

Beyond straightforward defensive categories, an often-overlooked phenomenon emerges during recessions: consumers redirect spending toward modest, affordable rewards. While major purchases like homes and vehicles get postponed, individuals often increase spending on reasonably-priced comforts—entertainment subscriptions, premium snacks, quick-service meals—as psychological compensation for delayed gratification.

This behavioral pattern creates opportunities in entertainment streaming services, confectionery companies, and fast-casual dining establishments.

Historical Evidence: The Great Recession as a Case Study

The 2007-2009 Great Recession provides instructive data on stock performance during severe downturns. Over the 18-month contraction, the S&P 500 (including dividends) declined 35.6%. However, selective holdings told dramatically different stories.

Stocks That Actually Advanced: Netflix surged 23.6% during the recession, followed by a gold-tracking ETF gaining 24.3%. Walmart posted 7.3% returns, while McDonald’s achieved 4.7% positive performance. These winners exemplified the “small indulgence” thesis and essential retail positioning.

Stocks That Declined but Significantly Outperformed the Market: Newmont (gold mining) declined only 0.3%, Hershey dropped 7.2%, Church & Dwight fell 9.6%, American Water Works retreated 12.7%, and NextEra Energy (utility) declined 15.7%—all vastly superior to the 35.6% S&P 500 decline.

The distinction matters: Netflix and similar entertainment stocks provided growth during contraction, while utility and consumer-staples plays offered downside protection through modest losses rather than collapse.

Industry-Specific Insights

Utilities as Long-Term Winners: American Water Works and NextEra Energy demonstrated that utility holdings aren’t merely defensive “widow and orphan” stocks. Both significantly outperformed market averages over the subsequent 15+ year period, with NextEra specifically benefiting from the renewable energy transition.

Underappreciated Performers: Companies like Church & Dwight received minimal financial media coverage despite exceptional 15-year returns, highlighting that investment opportunity doesn’t correlate with press attention.

The Tariff Advantage: Netflix and entertainment services enjoy a structural advantage in current geopolitical conditions. Unlike goods-producing companies facing import and retaliatory tariffs, service-based businesses remain largely insulated from trade war disruptions—a meaningful distinction for 2025 portfolio construction.

Practical Portfolio Adjustments

If recession probability reaches 60%, portfolio rebalancing warrants consideration. However, this shouldn’t trigger panic selling or complete market exit. Long-term investors face a critical temptation: selling growth stocks (particularly technology) that underperform during recessions risks missing early bull-market recoveries, which historically drive substantial returns.

Historically, the U.S. stock market has trended decisively upward over extended timeframes. Extended holding periods substantially diminish recession-related concerns. Time—not market timing—remains the long-term investor’s most powerful tool.

Key Takeaways for Recession Preparedness

Best stocks in a recession typically emerge from specific categories: essential consumer products, utilities, healthcare, and entertainment/discretionary comfort items. The Great Recession demonstrated that selective stocks not only weathered 35%+ market declines but posted gains or minimal losses.

Diversification across defensive categories provides meaningful downside protection without necessitating complete portfolio restructuring. Investors should review current holdings for resilience characteristics while resisting the urge to abandon growth-oriented positions entirely. The optimal approach balances recession-ready holdings with sustained market exposure—ensuring portfolio resilience without sacrificing long-term wealth accumulation.