Few stocks or industries can weather the kind of volatility and economic shock and uncertainty associated with a recession. Though there are some industries that do well during bull and bear markets. One of the more resilient is healthcare.
In fact, the healthcare industry tends to be viewed as being relatively recession-proof. That’s because healthcare companies provide products and services people need all the time. This includes drugs and over-the-counter medicines, medical equipment, hospital supplies, and health insurance.
Healthcare stocks tend to be some of the top performers during recessions. Even during recessions, people get sick and need to see a doctor and buy medicine. As a result, healthcare companies are able to provide investors with reliable earnings, strong balance sheets, and reliable dividend payouts.
Case in point: during recessions many businesses often cut or suspend their dividends or share repurchase programs in an effort to strengthen their bottom lines, pay down debt, and shore up their sagging share price.
How Have Healthcare Stocks Performed During Recessions?
Since the start of 1980, there have been six recessions. Over that period of time, healthcare stocks like Johnson & Johnson not only saw their share price trend steadily higher but they also consistently raised their dividend payout. In fact, Johnson & Johnson, which is held by the fund, has raised its dividend payout every year since 1963.
That doesn’t mean healthcare stocks don’t face pressure during recessions. But, because of their in-demand products, huge international footprint, and strong balance sheets, the top healthcare stocks often fall less than other stocks and are the first to recover.
More recently, healthcare stocks have been some of the biggest winners since the COVID-19 recession, which was the steepest and shortest in history.
Unlike most recessions, which are a result of an economic slowdown, the 2020 recession was sparked by the global shutdown associated with the pandemic. Healthcare stocks performed well as the pandemic took its toll and government-funded research helped pharmaceutical companies develop vaccines in record time.
The North American and global economies have recovered significantly since the 2020 recession. Corporate profit margins are near record highs, the Canadian and U.S. economies are creating jobs, and unemployment is near record lows.
But there is growing consensus that the U.S. and Canada could be heading toward another recession.
Over the last 75 years, every time inflation has exceeded four percent and unemployment has gone below five percent, the U.S. economy has hit a brick wall within two years. Today, inflation is near eight percent and the jobless rate is 3.6%.
The yield curve inversion is another accurate predictor of a recession. The two-year/10-year yield curve inversion has predicted every recession since 1955, save for one false signal in the mid-1960s. There was a slowdown, but not an official recession.
Fears of a recession have led many investors to focus their attention on defensive stocks.
Longer term, the healthcare sector should enjoy a number of tailwinds, including the ongoing need for boosters, advancements in medical technology, an aging population, emerging global middle class, and industry mergers.
Some of the best healthcare stocks that have a history of performing well during recessions, bear markets, and bull markets, making them mostly recession-resistant, include Johnson & Johnson, Pfizer Inc, AbbVie, Bristol-Myers Squibb Co, and Medtronic PLC.
LIFE ETF: Investing in the Healthcare Industry
The Evolve Global Healthcare Enhanced Yield Fund (LIFE ETF) provides investors with exposure to twenty global blue-chip healthcare companies with a covered call strategy that is actively managed to provide increased yield potential while helping mitigate risk. The LIFE ETF is available in hedged, unhedged and USD classes.
Managed by an established team of industry veterans with a proven track record of success, Evolve ETFs creates investment products that make a difference. For more information, please visit www.evolveetfs.com or download our one-pager about LIFE ETF.
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