The consensus of economic experts is clear: a recession is coming. However, many investors haven’t yet absorbed just how severe the recession is likely to get.

Last week JPMorgan Chase (NYSE: JPM) issued a forecast that shows economic indicators at their worst since the Great Depression nearly a century ago. You have to see these numbers to appreciate them.

Yes, that is a mind-boggling 40% decline in second quarter gross domestic product (GDP), which follows a 10% decline in first quarter GDP. Since a recession is defined as two consecutive quarters of declining GPD, this looks like the mother of all recessions. Deeply troubling is the second quarter unemployment rate, which is projected to spike to 20%.

This is why I keep saying that I think the current stock market rally is premature. We have had a steep correction, but then a rally as the market anticipates a return to normal. But these forecasts suggest normal isn’t coming for a while. Although conditions are expected to start bouncing back strongly in the third and fourth quarters, those high unemployment rates will continue to be a drag on the overall economy.

Investing for Recession

So what is an investor to do?

As I explained in a recent column, unless you are close to retirement, I wouldn’t sell off positions during a market decline. Consider the last huge correction that took place from 2008-2009. If you were invested in an S&P 500 Index fund at the beginning of 2008, you didn’t recover until 2012. That’s why someone approaching retirement needs to lighten up on equities. But long term investors were back to break even by 2012, and by 2018 they had doubled their money.

That’s a powerful lesson about long-term investing. Even if you had invested in the S&P 500 just before the 2008 crash, a decade later you had doubled your money. If you sold in a panic during the decline, it’s hard to say when you might have recovered.

But where should one invest during a recession? I have covered the business cycle approach to investing in the past. During a recession, some sectors have historically outperformed others. Which ones?

A recent guide on navigating recessions by Capital Group puts this information into an easily digestible graphic:

During the last eight major market declines, only two sectors have a 100% success rate in outperforming the S&P 500.

The Utilities sector consists of the companies that produce, generate, transmit or distribute electricity, natural gas, and water. Component companies include NextEra Energy (NYSE: NEE), Duke Energy (NYSE: DUK), and Dominion (NYSE: D).

The Consumer Staples sector consists of those companies that are involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products. These are the products that we can’t do without, even when times are tough. Component stocks are companies like Procter & Gamble (NYSE: PG) and Philip Morris International (NYSE: PM).

Not far behind were two other sectors that we rely on when times are tough: the Health Care sector and the Telecommunication Services sector.

As you try to figure out how to position yourselves in the months ahead, first set aside emergency funds in case this recession drags on longer than expected. We face challenging times for the rest of the year. But if you have discretionary money to invest, and you can afford to tie it up for a while to ride out this market, those are the sectors where I would focus your dollars.

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