Goldman Sachs shares 3 reasons why the US is in a historically strong position to weather a recession — and 3 places to invest your money right now

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  • The US is in a strong position to weather a recession, Goldman Sachs says.
  • Analysts at the bank hosted a webinar on Monday about recessionary threats. 
  • They shared where they see investing opportunities in the current environment. 

Recession fears have grown steadily since the start of the year as the Federal Reserve has become increasingly hawkish to fight off 41-year-high inflation, now at 9.1%.

The US economy met one definition of recession after posting its second-straight quarter of negative GDP growth this year. However, many people, including Fed officials, argue that the US is not in a recession with the labor market as strong as it is: the US added 372,000 jobs in June and unemployment is still at 3.6%. Also, the National Bureau of Economic Research has not yet made its official call.

But even if the US does enter a recessionary period where the job market craters and consumer spending slows, the country is in a uniquely good position — relative to history — to weather it, according to Goldman Sachs. The bank’s economists place a 48% chance on a recession unfolding in the next two years.

In a webinar on Monday focused on recessionary risks, a team of analysts and researchers at Goldman Sachs Asset Management laid out why they’re optimistic about the US economy’s prospects even in a recessionary scenario. 

The first reason is that there is still a robust number of job openings in the economy. Higher job opening numbers signal economic strength. 

“If you look at the number of job listings out there versus the number of people actually looking for a job, there’s a net deficit,” said Jason English, a managing director at Goldman Sachs and a consumer-exposed stocks analyst. “It’s actually the biggest deficit that exists on record with that dataset.”

Job openings dropped in June for the third-straight month to 10.7 million, however, according to a report from the Bureau of Labor Statistics. Still, the number of job openings remains historically elevated.

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Second, English pointed to the fact that consumers still have relatively high net worths. In Q1 of 2021, consumers had a collective net worth of $149 trillion. 

“The consumer is coming into this downturn with an incredibly healthy balance sheet,” English said. 

Federal Reserve

Consumers are starting to save less, however, as inflation and rising interest rates cut into budgets. Personal savings rates have dipped to the lowest levels since 2009, according to data from the US Bureau of Economic Analysis. 

Federal Reserve Bank of St. Louis

Where to invest

The team of analysts shared three areas of the market they see as compelling opportunities right now. 

The first is the consumer staples sector, which includes food and home product producers. English said he doesn’t think the sector has gotten its full due yet despite its outperformance this year. For example, year-to-date, the Consumer Staples Select Sector SPDR Fund (XLP) is down around 3% compared to -14.7% for the S&P 500.

“The group’s still a safe place to hide,” English said. “Don’t forget that we came into this year with mutual funds the most underweight consumer staples they’ve been in a decade. So people were just not invested in the space, and I don’t think we’re all the way back to equal balance.”

As far as growth stocks go, Eric Sheridan, an analyst covering internet stocks, said that more profitable growth stocks with quality balance sheets are in highest demand among investors he speaks with. Less profitable firms, meanwhile, are less in favor. 

“People are still looking at more mature, safer — for lack of a better term — growth, rather than being too risky in this environment,” Sheridan said. 

The American Century STOXX U.S. Quality Growth ETF (QGRO) offers exposure to quality growth stocks. 

Finally, Richard Ramsden, who covers large-cap bank stocks for Goldman, said banks with the following qualities are best-positioned in the current environment: those with large consumer deposit books; those that are conservative underwriters; and banks with good operating leverage

He said the seven largest US banks — which include JPMorgan, Bank of America, Wells Fargo, Citigroup, US Bancorp, PNC Financial Services, and Truist Bank, according to Bankrate — are best-positioned against losses. They’re also likely to keep their dividend payments even in a recessionary scenario, though earnings would come down significantly, especially if the Fed cuts rates lower. 

Ramsden also said the current state of the labor market and the consumer give banks protection against credit defaults.

“Usually consumers default when they lose their job and they cannot get reemployed. At the moment obviously we’ve got a very, very tight labor markets, and people can get reemployed very, very quickly. And critically they’re getting reemployed at the same, or even a higher wage than they had before.”

But, Ramsden said, consumers are not likely to be in such a strong position in 18 months time, and a recession then is likely to have bigger implications for the sector.

The Financial Select Sector SPDR Fund (XLF) offers broad exposure to the financials sector.