Everyone is concerned about a recession these days. And who can blame them? Inflation’s running at decade highs. Global supply chains are in disarray. A war is raging on in Europe. We’re dealing with soaring gas and food prices. There are more Covid-19 lockdowns in China, rapidly rising interest rates, and a crashing stock market. (The Dow Jones has shed 1,000 points in a day on two separate occasions over the past week).
No wonder everyone is Googling “recession” right now. Monthly U.S. search interest in “recession” hit levels in April that we’ve only seen during the last two economic downturns.
Indeed, all this interest hinged on the widespread fear that a U.S. market crash may happen soon. But what if I told you that a downturn has already arrived?
That’s right. The U.S. economy may already be in a recession.
That’s a scary thought. You’ve probably been worrying about a recession that the mainstream media has said won’t come until 2023. But it may have already arrived — and it could send the stock market spiraling lower.
Though, here’s the thing. In every bear market, certain stocks tend to soar. Thanks to a rare phenomenon called “divergence,” we’ve uncovered a special group of stocks that tend to soar during downturns. And they do even as the broader averages crash.
These are the stocks you need to be buying today. Forget index investing. It’s time to ditch the S&P 500 and Dow Jones. Buy divergent stocks to survive — and even thrive — a bear market.
Otherwise, you could lose 20% or 30% in a hurry.
The Recession May Have Already Arrived
Everyone seems worried about a recession that’s set to materialize in late 2023. But it increasingly appears that it may have already arrived.
The technical definition of a recession is two consecutive quarters of negative gross domestic product (GDP) growth. We already have one quarter under our belt. First-quarter GDP shrunk 1.4%. Therefore, all that needs to happen for the U.S. economy to fall into a recession is a negative second-quarter GDP print.
At this point, that seems entirely possible.
Recent economic data has been very weak. This week alone, the ISM Manufacturing Index for April missed expectations and fell from March. Construction spending data also missed expectations by a mile and significantly dropped month-over-month. Zooming out, home sales keep falling. Consumer spending is slowing, and sentiment is at decade lows.
The two broadest measures of U.S. economic activity — Citi’s Economic Surprise Index and the New York Fed’s Weekly Economic Index — are both falling.
Meanwhile, the Federal Reserve seems married to an aggressive rate-hike cycle. And that will only sap more energy out of an already stalling U.S. economy.
Altogether, it seems entirely likely that GDP shrinks. If it does, then we’re already in a recession.
Of course, that’s scary. Recessions are never good. And they tend to be very bad for the market.
But not all stocks drop during these downturns.
Divergent Stocks Soar During Recessions
As many of you know, we’ve been researching a rare market phenomenon called a “divergence” for several months now.
This anomaly only emerges about once a decade, during periods of peak market volatility. And it usually only happens in high-quality growth stocks that can grow rapidly, even during a recession.
At a high level, what tends to happen during a divergence is this:
- Investors start to panic about a recession.
- Stocks begin to drop on those fears.
- Most keep dropping because as the economy slows, those holdings suffer from declining revenues and earnings, too.
- Certain high-quality growth stocks don’t suffer from declining revenues and earnings. Instead, those fundamentals keep growing at a rapid rate because their growth drivers are so powerful that they’re “recession-proof.”
- This results in a massive divergence between the price of those stocks and the relative revenues and earnings.
- This divergence always corrects itself. And that sends those high-quality growth stocks significantly higher within a short time — even if the market keeps crashing.
This is a phenomenon that has repeated time and again throughout U.S. stock market history.
A Look Back to Past Recessions
For reference, let’s look at the last two major economic recessions.
Back in 2001, the U.S. economy slipped into a recession on the heels of the dot-com crash. During this time (illustrated by a gray highlight in the chart below), the stock market struggled. From early 2001 to late 2002, the S&P 500 dropped 24%, while the Dow Jones fell 16%. But over that same stretch, certain divergent stocks that grew revenues rapidly right through the recession (like Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY), and F5 Networks (NASDAQ:FFIV)) saw stock prices soar. While the S&P 500 dropped deep into a bear market, those stocks basically doubled!
Fast-forward to 2008-09. The U.S. economy was reeling from the housing crash and financial sector meltdown. We were deep into a recession. From late 2008 to early 2009, the stock market struggled. The S&P dropped 14%. The Dow fell 16%.
Yet, over that exact period, certain divergent stocks were able to sustain rapid revenue growth. Those stocks — like Amazon, Netflix (NASDAQ:NFLX), and Booking.com (NASDAQ:BKNG) — soared. Booking rose 50%. Both Amazon and Netflix popped more than 70%.
By now, you see the pattern.
The divergent stocks that we’ve discovered are the perfect recessionary medicine for your portfolio. During crashes, they tend to soar — while the rest of the market collapses.
Indeed, stocks are collapsing, and a recession may have already arrived. You owe it to yourself to at least check out some divergent stocks.
The Final Word on Combatting a Recession
A few days ago, I issued an emergency briefing on the 2022 divergence phenomenon. And I believe it includes the most important message of my investment career.
We sit on the verge of a very pivotal moment in U.S. stock market history.
I think we may already be in a recession. I think the broader market could struggle over the next few months. And I think investors who ignore this divergence phenomenon could lose a lot of money.
But… for those who listen to and capitalize on this divergence, the potential returns could be enormous.
Our models indicate realistic, back-tested potential gains of 200%-plus over the next 12 months alone.
So, the way I see it, you have three choices:
- Stay invested in index funds and exchange-traded funds, and risk losing money as the markets potentially struggle amid a recession.
- Cash out and put your money in a savings account, where inflation will eat your nest egg.
- Buy divergent stocks, and score 3X returns in 12 months, beating both a recession and inflation.
I think the right choice is obvious. But, of course, I’ll leave it up to you to seek out more about Divergence 2022.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.