Defensives still attractive as US recession risk remains high

Defensive stocks, such as some pharmaceutical and beverage companies with good fundamentals, is where investors should be paying their attention at times when the risk of recession in the US  is still high, according to ClearBridge Investments.

The firm’s portfolio manager and chief investment officer, Scott Glasser, said that he liked the ‘non-cyclical nature and modest valuation’ of pharmaceutical companies, which were one group of stocks, next to artificial intelligence (AI) companies, which were consolidating following a period of ‘mania’.

As far as the US economy’s resilience was concerned, the probability of a recession was still high with the unemployment data serving as the best predictor of whether or not the US was headed for a recession or soft-landing.

“If you had to pick one indicator to determine whether the US is going to be in a soft landing or recession over the next two, three or four quarters, look at jobless claims,” ClearBridge’s investment strategy analyst, Josh Jamner, said.

“If it remains below the 350,000 to 400,000 level, we’ll more than likely end up in a soft landing. If we get to that level or above it, we’re unfortunately probably headed for a recession.”

According to Glasser, “the Fed was probably done for now” as inflation was expected to stabilise.

“I think it’s going to be really hard for the Fed to get down to their 2% mandate for inflation. But if inflation winds up being 2.5%, I think that’s fine too. And at that point the Fed will more or less declare victory,” he said.