Since it's almost consensus that we will enter into recession territory in the coming couple of years, what asset classes and/or specific industries should we invest in for capital preservation or even an opportunity to make some gains?
If we're not shorting, are there counter-cyclical options? In terms of equity, I've considered cinema, cosmetics, and contraceptives. Or maybe I should go with fixed income or even cash.
This should be an interesting discussion.
liquor stores
Short Cars manufacturers, Travel agencies.
Could go long anything that consumer need on a daily basis but don't expect much returns as now most of the equity returns or losses are heavily correlated with the market. Hence if the market plunges, although a firm might still do well, its shares will most likely be down to. That's why I wouldn't go long any equities in a recession.
Long Gvt bonds/gold.
But for the sake of the original question, let's assume the call is correct and that you will be able to position appropriately ahead of it, I would buy US treasuries. Liquidity is paramount in a recessionary environment (assuming you want to buy low back into equities at some point), and treasuries are about as liquid as it gets. They will also benefit doubly from a flight to safety trade, and likely the federal reserve cutting interest rates (though you could argue rate cuts get priced in via the flight to safety).
If your original question is aimed towards how should you position within your equity allocation, I would suggest that you focus on high-quality companies that are more indifferent to the economic cycle with regards to their demand profiles (I would most likely suggest this regardless of your view on the cycle, but that's another discussion). Some characteristics of a business that would fit this profile would be: Recurring revenue streams, high customer retention rate, sells need-to-have vs nice-to-have products/services, sells products/services that are routine purchases for its customers, less capital intensity both via capex and working capital tie-up, clean balance sheet or adequate ability to service debt if you model a cut to cash flow... You also want to think about how exposed to the cycle a business's customers and supply chain are, and what the health of those businesses is. Lastly, you may want to have a look at their M&A history to get an idea on how disciplined they've been in past cycles: were they buying at the top and selling at the bottom or vise versa? If a business was selling at the bottom, it was likely out of necessity to inject liquidity, which imply a more cyclical business or balance sheet issues (how does their balance sheet look today vs then?).
So I would recommend focusing on better businesses on a business-by-business basis vs picking a certain industry that may hold up.