The risk has been increasing that the United States will have a recession in 2025 or within the next year, according to top Wall Street firms and economists. Recession risk has risen sharply over the last few months, largely due to the trade war and the potential for tariffs to hurt U.S. (and global) economic growth and ignite inflation.
Below I'll explore the current probability of a near-term recession and what stocks could hold up best during the next recession.
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What's the probability of a near-term recession in the United States?
Many of the probability estimates from experts that the U.S. will have a recession in 2025 or within one year fall within the 40% to 60% range, though there are some credible sources with estimates that are lower and higher. In early April, Wall Street company Goldman Sachs boosted its one-year recession-risk probability to 45% from 35%, which it had previously increased from 20% in late March.
Also in early April, JPMorgan pegged the odds of a U.S. recession in 2025 at 60%, up from its early March forecast of 40%. In mid-April, the investment bank reiterated its 60% probability. It said that President Donald Trump's 90-day pause on his April 2 country-specific so-called reciprocal tariffs "reduces the shock to the global trading order, but the remaining universal 10% tariff is still a material threat to growth, and the 145% tariff on China keeps the probability of a recession at 60%."
Which categories of stocks should hold up best during the next recession?
Certain categories of stocks tend to perform better than others during economic downturns. These mostly include what are called "defensive stocks" that tend to pay dividends.
Defensive stocks include several broad classes, including:
- Stocks of companies that make products or provide services that people need no matter the economic climate.
- Gold and silver mining stocks. Precious metals are considered hedges on inflation and the relative value of the U.S. dollar, which generally weakens during recessions.
Examples of the first group listed above include:
- Consumer staples: Food and beverage makers, personal and home care products manufacturers.
- Utilities: Water, electric, and gas utilities.
- Healthcare: Pharmaceutical makers, medical-device makers.
- Discount retailers: In tough economic times, many consumers tend to be more price-conscious.
There are other types of stocks that tend to weather recessions well. You can think of one group as "small indulgence stocks."
During economic downturns, many people will feel uncertain about their job security. As a result, they'll put off large expenditures, such as homes and new vehicles, and cut back their spending on discretionary items, such as clothing.
However, many folks will keep spending on what they consider relatively inexpensive "treats." Some might even increase their spending on such products or services to reward themselves for putting off spending on big-ticket items.
Examples of "small indulgence" products and services include relatively inexpensive:
- Entertainment, such as video-streaming
- Comfort foods (such as chocolates), meals out (fast-food restaurants)
What stocks gained or held up relatively well during the Great Recession?
All recessions are somewhat different, so it's not possible to say that just because select stocks held up well during prior recessions, they'll hold up well in future ones. That said, in general, certain types of stocks tend to perform better than others during tough economic climates, as discussed above, so investors can learn valuable lessons by looking at past recessions.
The Great Recession was a deep economic downturn that officially lasted for 18 months from Dec. 2007 through the end of May 2009. It's widely considered the most severe U.S. economic downturn since the Great Depression, which began following the stock market crash in 1929 and didn't end until the start of World War II in 1940.
During the one-and-a-half years of the Great Recession, the S&P 500 index, including dividends, plunged 35.6%.
Table 1: Stocks that gained during the Great Recession
These stocks and one exchange-traded fund (ETF) are listed in order of descending performance during the Great Recession. This list isn't all-inclusive.
| Company | Market Cap | Dividend Yield | Wall Street's Projected 5-Year Annualized EPS Growth | Return During Great Recession | Return From Start of Great Recession to Present* |
|---|---|---|---|---|---|
| Netflix (NASDAQ:NFLX) | $469 billion | -- | 23.6% | 70.7% | 33,280% |
| iShares Gold Trust ETF | $41.9 billion net assets | -- | -- | 24.3% | 302% |
| J&J Snack Foods | $2.5 billion | 2.4% | 9.1% | 18.1% | 404% |
| Walmart | $762 billion | 1% | 9.5% | 7.3% | 761% |
| McDonald's | $226 billion | 2.2% | 7.6% | 4.7% | 778% |
| S&P 500 index | -- | 1.36% | -- | (35.6%) | 424% |
Data sources: Yahoo! Finance, finviz.com and YCharts. Data to Friday, April 25, 2025. EPS = earnings per share. *Bold-faced returns = stock has beaten the S&P 500.
- Netflix: Video-streaming pioneer that's the world's leading video-streaming company.
- iShares Gold Trust ETF: Exchange-traded fund that aims to track the price of gold.
- J&J Snack Foods: Produces niche snack foods and frozen beverages.
- Walmart: World's largest retailer by revenue, focuses on low prices.
- McDonald's: World's largest fast-food restaurant chain by revenue.
Table 2: Stocks that held up relatively well during the Great Recession
The following stocks declined during the Great Recession but held up much better than the broader market, which dropped nearly 36%. This list isn't all-inclusive.
| Company | Market Cap | Dividend Yield | Wall Street's Projected 5-Year Annualized EPS Growth | Return During Great Recession | Return From Start of Great Recession to Present* |
|---|---|---|---|---|---|
Newmont | $60.8 billion | 1.8% | 7.2% | (0.3%) | 54.5% |
| Hershey (NYSE:HSY) | $33.1 billion | 3.4% | (7.4%) | (7.2%) | 524% |
| Church & Dwight (NYSE:CHD) | $24.4 billion | 1.2% | 7.4% | (9.6%) | 792% |
| American Water Works (NYSE:AWK) | $28.1 billion | 2.1% | 6.5% | (12.7%)* | 953% |
| NextEra Energy (NYSE:NEE) | $136 billion | 3.4% | 8.2% | (15.7%) | 531% |
| S&P 500 index | -- | 1.36% | -- | (35.6%) | 424% |
Data sources: Yahoo! Finance, finviz.com, and YCharts. Data to Friday, April 25, 2025. EPS = earnings per share. *Bold-faced returns = stock has beaten the S&P 500. **Company went public in April 2008, a few months after the recession started.
- Newmont: World's largest gold mining company, which also mines other metals.
- Hershey: Largest chocolate company in the U.S. by market share, also sells salty snack foods.
- Church & Dwight: Home and personal-care product maker, best known for its iconic Arm and Hammer brand baking soda.
- American Water Works: The largest and most geographically diverse regulated U.S. water and wastewater utility.
- NextEra Energy: Largest electric utility in the U.S. by market cap and the world's largest generator of renewable energy from wind and sun.
Key takeaways from the above 2 tables
1. Gold mining stocks (Newmont, Table 2) and gold ETFs (iShares Gold Trust ETF, Table 1) might hold up well or even make strong gains during tough economic climates, but they rarely perform well during booming economic times. Therefore, they tend to underperform the market over the long term. These investments are highly volatile and cyclical and best left to short-term traders.
2. Netflix and Hershey are good examples of "small indulgence stocks," as described above. Moreover, Netflix has an added benefit that wasn't an issue during the Great Recession: It should be little affected by the raging tariff war, as U.S tariffs on imports and other countries' retaliatory tariffs are on goods, not services. This is an important distinction that investors should keep in mind when selecting stocks.
3. Top utility stocks can outperform the market over the long term, despite conventional wisdom to the contrary. (Cases in point: American Water Works and NextEra Energy, Table 2.) These stocks aren't just "widow and orphan stocks," as stockbrokers, in general, have long characterized them. A statistic that might surprise many investors: As of April 25, shares of Google parent Alphabet have performed only slightly better than shares of American Water since the latter's initial public offering (IPO) 17 years ago in April 2008: GOOGL has returned 1,090% to AWK's 953%.
4. There are some top-performing stocks that get very little coverage in the financial press. (Case in point: Church & Dwight, Table 2). One takeaway here is that investors shouldn't conflate the amount of coverage a stock gets in the financial press with its desirability as an investment, especially a long-term investment.
Review your stock holdings -- but stay in the market
As noted in this article's opening, top Wall Street banks and economists generally give odds ranging from 40% to 60% that the U.S. will have a recession in 2025 or within the next year. These are quite high odds, so it makes sense that investors review their stock portfolio and perhaps tweak it to make it more recession-resistant.
That said, if you're a long-term investor, it's not a good idea to get out of the stock market entirely or make huge changes, such as selling all of your growth stocks. It's extremely difficult to time the market. If you sell your growth stocks that don't tend to do well during recessions (such as tech stocks), you'll risk missing the early stages of their upturns during the next bull market -- and the early stages of a sustained upturn tend to be strong.
Time is a long-term investor's friend. Over the long term, the direction of the U.S. stock market has been decisively up. The longer your investing time frame, the less concerned you need to be about recessions causing market downturns.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of Motley Fool Money. Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Goldman Sachs Group, Hershey, JPMorgan Chase, Netflix, NextEra Energy, and Walmart. The Motley Fool has a disclosure policy.
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