The economy is in a contraction phase if GDP is shrinking, unemployment is high and companies are reporting slow growth and weak profits ๐ฐ
During the contraction phase, since businesses are struggling, stock prices typically fall ๐
If GDP declines for two quarters in a row, the economy enters a recession
The last time this happened was in 2008 when the housing market crashed and millions lost their jobs ๐
So what can you do to navigate a contraction or recession as an investor? ๐ค
First, don't panic and sell everything just because your investments are going down ๐
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However, you could consider moving some money away from stocks into less volatile, lower-risk assets like cash or bonds, especially when interest rates are high!
As a stock investor, focus on high-quality companies with strong balance sheets that can weather the storm and grow in the long-term ๐ง๏ธ
Some sectors that tend to hold up better in recessions are consumer staples, utilities and healthcare โ in other words, goods and services that people need no matter how the economy is doing! ๐๐ฉบ
It can also be a good time to look for opportunities to buy stocks at discounted prices ๐ธ
The stock market often overreacts to economic challenges, surfacing potentially undervalued stocks!
Just like how expansions always end in a peak, contractions โ and recessions โ eventually end with a trough, and markets have always recovered from them ๐ช
Letโs explore that next!