'Recession Will Likely Be Necessary': JPMorgan Just Issued A Strong Warning About Stocks, Says The Impact Of Spiking Rates Has 'Yet To Be Felt'

The U.S. economy grew at an upwardly revised annual rate of 2% in the first quarter, shrugging off prior fears of a recession. But according to JPMorgan Chase & Co., the “R word” may be inevitable.

That’s because of the U.S. Federal Reserve’s aggressive interest rate hikes to tame rampant inflation.

“While the economy’s recent resilience may delay the onset of a recession, we believe that most of the lagged effects of the past year’s monetary tightening have yet to be felt, and ultimately a recession will likely be necessary to return inflation to target,” JPMorgan strategists led by Marko Kolanovic wrote in a recent note to investors.

Although the stock market has made a strong comeback — the S&P 500 is up 19% in 2023 — Kolanovic’s team remains on the cautious side.

“We maintain a defensive asset allocation and believe the risk-reward for equities remains poor given the disconnect between equities and bonds, high likelihood of a recession over the coming quarters, high rates, tightening liquidity, rich valuations and the still-narrow market breadth,” they wrote.

With that in mind, here’s a look at three things that could help you survive the storm.

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Build A Financial Safety Net

In uncertain economic times, it’s important to build a financial cushion to safeguard against the potential impacts of a recession.

According to a survey from Bankrate earlier this year, 57% of Americans are unable to cover a $1,000 emergency expense with their savings.

So you might want to consider creating a robust financial safety net. One way to do this is to adopt prudent spending habits and identify areas where expenses can be reduced. By prioritizing saving over unnecessary expenditures, you can set aside a portion of your income regularly and accumulate funds that will provide stability and security during challenging times.

The Federal Reserve’s monetary tightening is a key reason behind Kolanovic’s recession warning. But those aggressive rate hikes also mean that people can finally earn some return on their savings.

These days, there are plenty of high-yield savings accounts to choose from. And you don’t need to visit a brick-and-mortar bank to find the ones that pay higher interest rates and charge no account fees.

Recession-Proof Dividend Stocks

The prospect of a recession doesn’t really bode well for the stock market. If companies post reduced revenue and profit, it could lead to lower valuations.

But you don’t necessarily need a rallying market to make money from stocks. You can also collect dividends.

With the right dividend stocks, investors can bypass the stress and uncertainty associated with attempting to time the market while benefiting from a steady stream of passive income.

Business magnate John D. Rockefeller once said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

But not all dividend stocks are the same. In today’s economic environment, you’ll want to pay attention to companies that have the ability to return cash to investors through thick and thin.

For instance, retail behemoth Walmart Inc. has increased its cash dividend every year since declaring its first annual dividend in March 1974. Global beverage titan The Coca-Cola Co. announced its 61st consecutive annual dividend hike in February. Meanwhile, consumer staples giant Procter & Gamble Co. has raised its payout to shareholders for 67 years straight.

Past performance is no guarantee of future results, but because these companies have demonstrated the ability to pay increasing dividends even during recessions, they could provide a starting point for further research.

Residential Real Estate

This one might sound counterintuitive. A high-interest rate environment also leads to high mortgage rates, so shouldn’t that impact the housing market negatively?

It’s true that real estate has taken a hit.

Billionaire investor Stanley Druckenmiller recently said that housing “has obviously gone down dramatically given the 500 basis-point increase in interest rates.”

But this is not doom and gloom, as he noted that there’s now a “structural shortage in single-family homes.”

“So if things got bad enough, I could actually see housing — which is about the last thing you would think of intuitively — could be a big beneficiary on the way out,” Druckenmiller said.

The reality is, whether the U.S. economy grows or falls into a recession, people will always need a place to live. Meanwhile, elevated home prices and high mortgage rates mean owning a home is less feasible. And when people can’t afford to buy a home, renting becomes the only option. This creates a stable rental income stream for landlords.

The best part? It’s easy for retail investors to invest in housing — and you don’t actually need to buy a house to do it. Publicly traded real estate investment trusts own income-producing properties and pay dividends to shareholders. And if you don’t like the stock market’s volatility, there are options to invest directly in rental properties with as little as $100 through the private market.

Check out:

• Passive income investments are one of the most trusted methods for riding out a recession so it’s no surprise that people are turning to high-yield notes that pay a fixed 7.5% to 9%.
• A REIT you’ve probably never heard of is up 36% over the past two years. Here’s how its unique model is crushing the market.

This article was originally published on June 28, 2023, and updated to reflect current data