What Sectors Perform Well During Economic Downturns?
Back in 2020, the U.S. economy was heading straight into a recession due to the COVID-19 pandemic. Things looked pretty bleak. The Federal Reserve raised interest rates and kept them higher than many expected—even into 2023—because another downturn seemed likely. But by November 2024, the Fed made a surprising announcement: “Recent indicators suggest that economic activity has continued to expand at a solid pace.”
So while the tone remained cautious, it was clear the economy had started to recover.
The “Great Lockdown” Crash
The early part of 2020—often called the Great Lockdown—was a brutal time for markets. In the first quarter alone, only 32 companies out of the 500 in the S&P 500 had positive returns. That’s just 6% of the index!
But those companies had a few things in common, and understanding them helps us see what kinds of stocks can do well when the economy takes a hit.
Top 10 Best-Performing S&P 500 Stocks in Q1 2020
| Company Name | Q1 2020 Return | Sector |
|---|---|---|
| Regeneron Pharmaceuticals (REGN) | +30.04% | Healthcare |
| Citrix Systems (CTXS) | +28.02% | Information Technology |
| NortonLifeLock (NLOK) | +25.38% | Information Technology |
| Digital Realty Trust (DLR) | +17.02% | Real Estate |
| Gilead Sciences (GILD) | +16.19% | Healthcare |
| Netflix (NFLX) | +16.05% | Communication Services |
| Clorox (CLX) | +13.60% | Consumer Staples |
| SBA Communications (SBAC) | +12.22% | Real Estate |
| MSCI Inc. (MSCI) | +12.16% | Financials |
| NVIDIA (NVDA) | +12.10% | Information Technology |
Also Read: How to Save for Retirement in Your 30s?
What These Stocks Had in Common
🏥 Healthcare
Regeneron led the pack. As a biotech firm working on a COVID-19 treatment, investors poured money into its stock. Gilead Sciences saw a similar boost for the same reason.
Healthcare tends to do well in recessions because people need medical care no matter what. It’s what economists call price inelastic—you’re not going to skip medicine just because times are tough.
But be cautious—not all healthcare companies are built the same. Startups with a lot of debt and no steady cash flow may struggle. When investing, look for healthcare firms with low debt and strong balance sheets.
💻 Information Technology
Three of the top 10 companies were tech firms. But they didn’t just perform well because tech is “hot”—they actually benefited from the shift to working and staying at home:
- Citrix soared thanks to more people using video conferencing.
- NortonLifeLock did well because of rising demand for cybersecurity.
- NVIDIA gained from the surge in gaming and home computing.
Tech stocks can sometimes behave like growth stocks and sometimes like defensive plays—it depends on the situation. But in 2020, many tech companies offered services that suddenly became essential.
🏢 Real Estate
You might not expect real estate to shine in a recession, but two REITs (Real Estate Investment Trusts)—Digital Realty and SBA Communications—bucked the trend.
Why? Because they weren’t focused on malls or office spaces. Instead, they specialized in data centers and telecom towers, which saw demand rise as the world went digital.
Not all REITs are created equal, though. Real estate can be very cyclical, so choose wisely based on the sector and financial strength.
📺 Communication Services
This sector covers everything from social media to streaming services. In 2020, Netflix had a fantastic quarter. With everyone stuck at home, binge-watching became the norm. Subscription numbers soared, and so did the stock.
While entertainment may seem like a luxury, streaming turned out to be a small comfort people were willing to pay for—even in tough times.
🧼 Consumer Staples
Clorox had a standout year. With disinfectants flying off the shelves, the demand for cleaning products skyrocketed. Other companies in this sector—like Kroger, Costco, General Mills, and Colgate—also did well.
Why? Because these companies sell everyday essentials—the kind of stuff people buy no matter what. That’s why consumer staples are often seen as a safe place to invest during a downturn.
Also Read: How to Start Investing with Little Money?
Not All Recessions Are Alike
It’s important to remember: not all recessions are the same. Some are caused by financial crashes, others by global events—like the pandemic. The 2020 recession was unique. Many of the companies that performed well did so not just because they were recession-proof, but because they actually benefited from the lockdown.
In general, sectors like healthcare, consumer staples, utilities, and sometimes even technology are considered more stable during economic downturns. But performance still depends on a company’s business model, balance sheet, and how the government responds to the crisis.
Final Thought
The 2020 market crash reminded us that smart investing isn’t about predicting the future—it’s about being prepared. Sectors that meet essential needs and adapt to big changes tend to hold up better. So next time the market gets rocky, don’t panic—look for companies with strong foundations, steady cash flow, and real-world relevance.
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