Uncertainty is roiling stock markets these days.
That’s an understatement.
The potent combination of high inflation and rising interest rates is creating a toxic mix that could potentially depress earnings for a wide swath of companies.
Stocks have been tumbling sharply in both the US and Hong Kong, with the latter also suffering from a crisis of confidence after China recently-concluded Communist Party Congress.
Whether you are a growth or income investor, you may be feeling worried and stressed over the current state of affairs.
A few thoughts may be running through your head.
- Will earnings fall sharply, leading to a further plunge in share prices?
- Could dividends get slashed as companies seek to conserve cash?
- How long will this downturn last? Years?
- What if my wealth is eroded for good?
The last question is probably the scariest, especially after the roller-coaster ride in the stock market over the past year.
But WAIT …
Hold on for a minute.
Let’s take a step back and look at what’s going on.
For those who have been in the market for some time, the fears above have a familiar ring to them.
Anyone who has studied some stock market history probably has some inkling as to what happened in prior decades.
I’ll give you a big hint.
All that’s happening now, including the thoughts that may be running through your mind, have happened before.
Back in the 1970s, the world suffered from stagflation, a combination of slow growth coupled with rapidly rising inflation.
Federal Reserve chairman Paul Volcker raised interest rates to a mind-blowing 19% to bring inflation down, triggering a steep recession that brought pain to both individuals and businesses.
Fast forward to the late 1990s, and we have the dot.com bubble and subsequent bust that saw numerous internet companies get wiped out.
This event has an eerily similar ring to today’s 30% decline in the NASDAQ Composite Index from its peak.
Finally, there’s the Great Financial Crisis where overleveraged banks came crashing down in 2008-2009, threatening to bring down the entire banking system.
The silver lining
If you hadn’t noticed, there is a common theme running through these events from the past.
In all these cases, the stock market has always recovered and gone on to do well, as can be seen by the S&P 500 Index since the 1930s.
Source: Managing Market Volatility, Russell Investments
If you dig deeper, you will find that there are companies with the financial strength and business resilience which weathered the storm to emerge stronger.
The key is to select those companies that can tide through challenging times and have survived stormy seas in the past.
Like an experienced captain steering a sturdy ship, these businesses can sail through relatively unscathed and live to see better days.
Stick with quality to gain assurance
If you’re scratching your head as to which types of businesses can weather a recession, you can always start with the blue chips.
DBS Group (SGX: D05), Singapore’s largest bank, has an enviable reputation of being named the World’s Best Bank by Global Finance.
The lender has showcased its quality by clinching this title three times in the last five years.
Singapore Exchange Limited (SGX: S68) is another high-quality name.
The bourse operator enjoys a natural monopoly and pays out consistent quarterly dividends through good times and bad.
A downturn may depress their share prices, but being paid a dividend while you wait for the recovery is a fair deal.
Getting cosy with dividend stalwarts
Elsewhere, there’s a category of stocks in the US stock market that can provide the same level of comfort and assurance.
And I can bet that you’d feel all cosy with this group as they are familiar household names that sell products all around the world.
Not only that, but they have also been paying out increasing dividends over more than five decades and have been inducted into the hall of “dividend kings”.
Procter & Gamble (NYSE: PG), which sells popular brands such as Pampers, Gillette, and Pantene, has raised its dividends over 66 consecutive years.
Food and beverage giant PepsiCo (NASDAQ: PEP), famous for its signature Pepsi Cola soda and snack brands such as Lays and Doritos, has increased its dividends over an impressive six decades without a pause.
Certainty in an uncertain world
So, here’s the deal.
Uncertainty and recessions are not new things in the stock market.
There is little you can do about what is happening as each event is different.
Yet, understanding history will help put you in a better position to thrive, as an investor, in the future.
The evidence above shows that markets have faced many periods of uncertainty over the decades.
Yet, by parking your money in strong, familiar names, you can achieve the best form of certainty in an uncertain world.
And I am sure you’ll agree that the peace of mind you get from doing so is priceless.
In our special FREE report, Top 9 Dividend Stocks for 2022 – and 3 Tactical Shifts to Maximise Your Profits, we’re revealing 3 special categories of stocks that are poised to deliver maximum growth in 2022 and beyond.
Our safe-harbour stocks are a set of blue-chip companies that have been able to hold their own and deliver steady dividends. Growth accelerators stocks are enterprising businesses poised to continue their growth. And finally, the pandemic surprises are the unexpected winners of the pandemic.
Download for free to find out which are our safe-harbour stocks, growth accelerators, and pandemic winners! CLICK HERE to find out now!
Disclaimer: Royston Yang owns shares of DBS Group and Singapore Exchange Limited.