Do mid-cap stocks do well in a recession?
If, on the other hand, the economy begins to slow down or enter a recession, then mid-cap companies will outperform small-caps. As seen in the figure below, mid and small-caps (represented by the S&P 600) perform well in the early stages of the business cycle as soon as people sense a recovery.
The best recession stocks include consumer staples, utilities and healthcare companies, all of which produce goods and services that consumers can't do without, no matter how bad the economy gets.
But some market professionals say that these midcap-shunning investors are making a mistake—and that now may be a good time to buy. Midcaps—or companies with market capitalizations between about $2 billion and $10 billion—lagged behind both large-cap and small-cap indexes in 2023.
Taking a slightly wider view, the midcap index has outperformed the smaller index (in terms of market cap) in six out of the last 10 years (including 2024). The broader market has seen a stellar run over the last few years, but within this realm smallcaps have usually outperformed the midcap segment by a fair margin.
Large-cap companies, as more mature and established players, exhibit the most stability in their stock prices. Investing in small caps and mid caps requires a higher risk tolerance to withstand their price swings.
Key Takeaways. During a recession, most investors should avoid investing in companies that are highly leveraged, cyclical, or speculative, as these companies pose the biggest risk of doing poorly during tough economic times.
Most stocks and high-yield bonds tend to lose value in a recession, while lower-risk assets—such as gold and U.S. Treasuries—tend to appreciate.
The risk involved in mid-cap funds is slightly higher than in large-cap funds. This is suitable for investors who are moderately risk-tolerant with a long-term investment horizon. These are best for short-term investors.
The fall in midcap and smallcap stocks was catalyzed by stretched valuations and worries on liquidity risk in SMID funds. However, the analyst believes that the fundamentals remain strong with broad-based earnings growth continuing in FY25, albeit with some deceleration.
Industry experts suggest mid-caps are able to produce better returns because they are quicker to act than large caps and more financially stable than small caps, providing a one-two punch in the quest for growth. Investors interested in mid-cap stocks should consider the quality of revenue growth when investing.
What are the disadvantages of mid-cap stocks?
Volatility: Mid-cap stocks can be more volatile than large-cap stocks, with their prices subject to significant fluctuations. Liquidity: In some cases, mid-cap stocks may have lower trading volumes, making it more challenging to buy or sell shares, particularly in large quantities.
Mid-cap stocks generally fall between large caps and small caps on the risk/return spectrum. Mid caps may offer more growth potential than large caps, and possibly less risk than small caps. Small-cap stocks tend to be, on average, least developed publicly traded companies, although there are exceptions.
To find an appropriate investment mix for your time horizon, find your age and the corresponding portfolio allocation. A typical mixture could include 60% large-cap (established companies), 20% mid-cap/small-cap (small to medium-sized compa- nies), and 20% international (companies outside the U.S.) stocks.
Profit growth for the S&P 500 is estimated to be 12% in 2024 after tracking slightly down in 2023. Mid-caps are expected to post 8% y/y growth in 2023 and 2024, while small caps are anticipated to rebound from profit declines of 10% in 2023 to 23% growth in 2024.
It is suitable for investors who are open to a moderate risk in their investment. Mid cap funds, unlike large-cap funds, do not have a low-risk ratio. Neither do they have a high risk like small cap funds; therefore, it is somewhere in the middle.
Up Months | Best 3 Months | |
---|---|---|
S&P 500 | February March, April, May, July, August, October, November, December | April, July, November |
Nasdaq 100 | January, March, April, May, July, August, October, November, December | April, July, October/November |
Stock | Implied upside from Feb. 21 close |
---|---|
Walmart Inc. (ticker: WMT) | 4.8% |
Abbott Laboratories (ABT) | 6.9% |
Synopsys Inc. (SNPS) | 6.3% |
Accenture PLC (ACN) | 3.6% |
It becomes a bit more important to focus on top-quality companies in turbulent times, but, for the most part, you should approach investing in a recession in the same manner you would approach investing any other time. Buy high-quality companies or funds and hold on to them for as long as they stay that way.
- Defensive sector stocks and funds.
- Dividend-paying large-cap stocks.
- Government bonds and top-rated corporate bonds.
- Treasury bonds.
- Gold.
- Real estate.
- Cash and cash equivalents.
The Bottom Line
There are many reasons why it's better for investors to not sell into a bear market and stay in for the long term. This is why it's important to understand your risk tolerance, your time horizon, and how the market works during downturns.
What stocks did well during 2008 recession?
Luckily, there are some stocks that are more resilient to the negative effects of a downturn. Three stocks that outperformed the S&P 500 during the 2007-09 Great Recession were Gilead Sciences (GILD -1.67%), McDonald's (MCD -0.79%), and Walmart (WMT 0.46%).
- Cut living expenses. ...
- Build an emergency fund. ...
- Develop new skills. ...
- Speak with a financial adviser. ...
- Create passive income sources. ...
- Start a business. ...
- Consumer staples. ...
- Bonds.
- Indian Hotels Company Ltd. ...
- Punjab National Bank. ...
- Polycab India Ltd. ...
- One 97 Communications Ltd. ...
- Astral Ltd. ...
- Cummins India Ltd. ...
- IDFC First Bank Ltd. ...
- AU Small Finance Bank Ltd.
- Quant Large & Mid Cap Fund. 11.98% ...
- Baroda BNP Paribas Large & Mid Cap Fund. 8.99% ...
- Axis Growth Opp Fund. 8.92% ...
- Invesco India Large & Mid Cap Fund. ...
- ICICI Pru Large & Mid Cap Fund. ...
- Bandhan Core Equity Fund. ...
- HSBC Large & Mid Cap Fund. ...
- Motilal Oswal Large & Midcap Fund.
A mid-cap fund is a pooled investment, such as a mutual fund, that focuses on companies with a market capitalization in the middle range of listed stocks. Mid-cap stocks tend to offer investors greater growth potential than large cap stocks, but with less volatility and risk than small cap stocks.