Bank of America: Buy these 22 stocks that will outperform as people look for ways to save in a recession that will push even high-income Americans to spend less
Investors are on edge after bank failures sent markets reeling. Bank of America thinks more volatility is ahead, but has a plan for how to play it.
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Stock market volatility and layoffs in industries like Big Tech are affecting wealthier Americans.
Bank of America says that's an important dynamic to recognize in the oncoming economic downturn.
The firm has picked the stocks it thinks will win — and lose — as customers cut their spending.
While recessions are especially damaging for people with low income, the current market slump might be causing pain for people who are better-off.
Bank of America thinks a recession is coming, despite the fact that the US economy is still holding up fairly well right now. What's hurting so far are stocks, bonds, and housing prices, all of which disproportionately affect those at the higher end of the income spectrum.
Although the job market is still hot, layoffs in Big Tech and other areas have also included an unusual proportion of high-earners as well.
"Spending by upper-income households that hold the preponderance of assets may be more susceptible to market declines, and we see evidence of a layoff cycle more skewed toward mid-to-high income earners," wrote Bank of America US Equity Strategist and Head of US Small/Mid Cap Strategy Jill Carey Hall in a recent note to clients.
That means that in the coming downturn, people with higher income are more likely to trade down and cut back on spending than in the past.
"We see risks to higher-end exposed US stocks this year, in part due to an amplified wealth effect," Hall wrote. "These goods have typically been more defensive than lower price point retailers during past slowdowns, but this time could be different."
As these people cut their spending and tighten their purse strings, they will naturally tend to make more food at home and eat out less — and companies that offer more budget-friendly options stand to benefit.
"We identify sub-sectors/stocks (many of which are in SMID) likely to benefit from trade-down and/or Staples>Discretionary: pizza in Restaurants, Leisure stocks with strong value offerings like Planet Fitness (PLNT), warehouse chain BJs (BJ), off-price retailers like Burlington (BURL), needs-based Hardline stocks, and more," Hall wrote.
That process will also have losers, or companies that will see lower sales as a result of their high-end clients taking cost-cutting measures. Hall thinks those could include winter clothing maker Canada Goose, home goods retailer Bed Bath & Beyond, electronics retailer Best Buy, and consumer products companies like Clorox and Kimberly-Clark.
But the following 22 companies all have "Buy" ratings from Bank of America, and Hall expects them to benefit from the oncoming economic slump as high-earners cut back on spending.
