A Recession is Inevitable: 3 Industries Investors Should Avoid

For more than nine years, the U.S. economy has chugged along a path of growth but it won't maintain that course forever. ------------------------------------------------------------------------------------------------------------------------------------------------------ [View this email in your browser]( For more than nine years, the U.S. economy has chugged along a path of growth but it won't maintain that course forever. This week, we're helping you keep that in mind with tips on which areas consumers cut back on during a recession and a refresher on the perks of long-term investing. Also, get to know some top stocks in digital agriculture and read up on Warren Buffett's expanding interest in Southwest Airlines. – Katie Carrera, Stock Up Editor 3 Industries to Avoid Investing in for the Foreseeable Future --------------------------------------------------------------- Since the conclusion of the Great Recession in June 2009, the United States' economy has expanded for 109 consecutive months — that's close to a historical run. If the expansion continues through next July it will top the 120-month stretch that led up to the dot-com bubble as the longest stretch ever. Historical data, however, tells us that another recession is inevitable at some point in the future. It's probably not too far-fetched to consider that the economy may be at the latter end of its current expansion cycle. If you agree with that thesis, [here are three areas investors may want to avoid for now]( Residential construction: The Federal Reserve is in the midst of a series of interest rate hikes, eyeing three to four quarter-point increases in each of the next two years. Inflation is also on the way up, which could prompt more aggressive increases. All of this puts upward pressure on mortgage rates, which have been historically low — consider a 30-year mortgage rate is at 4.6%, the last time it hit 5% was February 2011. Any rate increase could cause people's appetite for homeownership to drop. Weight-loss service providers: Based on their recent quarterly results or stock performances, companies that provide weight-loss meals or services might not seem like something to avoid. Evidence from the dot-com bubble and Great Recession, however, show that discretionary spending on weight-loss products is one of the first expenses consumers jettison when trying to pare down spending. Casual-dining restaurants: A 2014 report from the Bureau of Labor Statistics examined consumers' behavior toward food in different economic scenarios and found that people tend to eat more at home during and after a recession, or, if they eat out, they prefer limited-services restaurants, such as fast food or fast casual. That leaves full-service casual-dining restaurants taking the brunt of consumers' desires to rein in spending. --------------------------------------------------------------- Let's buy like it's...1974? Despite low unemployment rates, wage growth in the United States has been remarkably stagnant. A [new study by the Pew Research Center]( found that Americans' real wages — meaning, taking inflation into account — have the same purchasing power it did 40 years ago. --------------------------------------------------------------- Data Shows You're Smart to be a Long-Term Investor While the above are industries you might want to steer clear of for now, it's not to discourage investing even if a recession is on the horizon. After all, we're big believers of long-term investing at The Motley Fool. [Here are a few data points to back up a long-term buy-and-hold philosophy:]( - The U.S. economy spends far more time expanding than contracting. In the nearly 73 years since October 1945, the month after World War II ended, the U.S. economy has been expanding (as measured by gross domestic product) for 86% of the time. If the economy is growing, there's a decent chance that high-quality businesses are playing a key role in it. - Bear markets and corrections may be swift, but they always get erased by bull market rallies. There have been 36 corrections in the S&P 500 totaling at least 10% since 1950, according to analysis firm Yardeni Research. Excluding our latest correction due to its recency, every other one, whether of the 10% variety, or the 57% decline associated with the Great Recession, was eventually erased in its entirety by a bull market rally. While there are no guarantees when it comes to investing, a bull market rally erasing a correction or bear market is as close to a certainty as you're ever going to get. - The data doesn't lie — timing the market is a crapshoot. A 2016 J.P. Morgan Asset Management report examined the S&P 500 between Jan. 3, 1995 and Dec. 31, 2014 — a period that includes the dot-com bubble burst and the plunge of the Great Recession. An individual who bought into the S&P 500 at the beginning of that stretch and held would have netted a 555% return. Had they missed only the 10 best single-day performances, the return would have been slashed to 191%. If they missed just over 30 of the best days, it would wipe out gains entirely. --------------------------------------------------------------- FEATURED PODCAST --------------------------------------------------------------- [Industry Focus]( Berkshire Hathaway's Earnings and Massive Cash Hoard The conglomerate had an excellent second quarter, but its cash problem continues. [Subscribe on iTunes]( --------------------------------------------------------------- Smart Farming: Top Stocks in Digital Agriculture As you read this, there's probably a drone buzzing over cornfields in Iowa. A farmer in Minnesota is checking their smartphone to observe rainfall totals, acre by acre. In September, farmers in Brazil will turn to digital tools to determine how many corn and soybean seeds to distribute across their soil. Digital agricultural tools combine predictive analytics with data science and puts it in the hands of farmers in an effort make them more resilient to the whims of Mother Nature, boost profitability and reduce waste. It may not be on the radar of most investors, but it holds enormous potential for the future of farming and food production. Here are [three of the top platforms in the space that are available to individual investors]( - Bayer ([NASDAQOTH:BAYRY]( Climate FieldView is the leading software platform in the industry, boasting more than 100,000 users and offers a look at how the market is structured and product pricing. It offers three tiers — free, annual subscription, subscription plus per-acre fee — and offers capabilities such as yield analysis, field health, seed and nitrogen management tools. - DowDuPont ([NYSE:DWDP]( developed the Encirca software platform and acquired two other digital agriculture companies since 2015. But in the second quarter of 2019, the conglomerate will spin off its agriculture products into a separate, publicly traded entity called Cortevea Agriscience. It will start life as a leader in the field, expected to boast annual sales of $14 billion and an operating margin of 15%. - Fertilizer producer Nutrien ([NYSE:NTR]( is keen to diversify its revenue base by boosting its retail segment and digital agriculture is a critical component. It announced two digital ag acquisitions in July alone — software start-up Agrible (and it's 11-million-acre network) and soil science lab Waypoint. With its financial momentum building, it's possible the company may make more moves this year. --------------------------------------------------------------- Happy Birthday, Social Security: America's most important social program turned 83 on Aug. 14. [President Franklin D. Roosevelt signed the Social Security Act]( into law in 1935, payouts began in 1940, and as of June, close to 62.5 million people were receiving monthly benefits. --------------------------------------------------------------- How Much Does Warren Buffett Love Southwest Airlines? Most airline stocks have traded lower this year, but the possibility the Oracle of Omaha could come knocking for an outright purchase has reignited investor interest recently — especially in Southwest Airlines ([NYSE:LUV]( a top airline that's become one of Warren Buffett's favorites. In the second quarter, Buffett's Berkshire Hathaway ([NYSE:BRK-A]( [boosted his stake in the friendly flyer by 20%, to roughly 57 million shares that are valued at about $2.9 billion](. Southwest stock took a drubbing in Q2 after an engine exploded on one of its planes, killing one person and injuring seven others. The slowdown in the airline's business (sales grew just 0.2% and its average fare declined 4%) after the accident and corresponding sell-off was apparently too much for Buffett to resist. Wall Street's been speculating for weeks that Southwest's a natural fit for Berkshire Hathaway to own outright because of its consistent earnings and top-tier management team — two factors that Buffett has focused on in past acquisitions. It's anyone's guess if Buffett plans to make a bid for Southwest or if he's content being one of its biggest shareholders. Berkshire Hathaway is sitting on a massive $100 billion-plus cash stockpile, so he's got plenty of financial firepower, but Buffett's known for his patience. He could be content to wait until the next recession strikes to make his move. --------------------------------------------------------------- Quick Reads - [A question for Gen Xers:]( How much do you need to retire? A recent study found the average estimate landed at a cool $2.5 million. We crunched the numbers. - [5 promising vaccines:]( Nearly $5 billion in combined sales could be on the way from these top developmental vaccines, which means several biopharmaceutical companies are eyeing big benefits. - [An eye on defense spending:]( After two years of dramatic budget increases, Pentagon planners say they likely won't request another hike in 2020. But there are reasons to believe defense contractors should fare just fine. --------------------------------------------------------------- TWEET OF THE WEEK --------------------------------------------------------------- [Tweet of the week: The difference between successful people and others is how long they spend time feeling sorry for themselves - Barbara Corcoran, investor on Shark Tank]( [See all our Tweets]( Join the 1,300,000+ people who follow us! [Twitter]( [Facebook]( We work fervently, feverishly, and Foolishly to make sure all the facts and figures we publish in our emails are 100% accurate and up to date. Returns as of August 15, 2018. Our mailing address is: The Motley Fool | 2000 Duke St. | Alexandria, VA 22314 Want to change how you receive these emails? You can [update your preferences]( or [unsubscribe from this list](. This is a promotional message from The Motley Fool Copyright © 1995-2018 The Motley Fool. All rights reserved. [Legal Information.](