This is a summary of an excerpt of some firm-wide DD sent out last week from Morgan Stanley. Thought this would be useful for you guys but let me know if this is too abstract. Can post excerpts from research daily if there is interest.
The worst performance for most industry groups has tended to come in the ~3 month period after the start of the recession, with significant widening in returns thereafter.
- Persistent Outperformance: Health Care & Staples
- Food/Beverage/Tobacco, Health Care Equipment + Services, Pharma/Biotech/LS tend to perform on an absolute and relative basis. Household/PP/Software/Utilities show relative outperformance with a significantly greater variance.
- Persistent Underperformance: Autos & Tech Hardware
- Strong tendency to continue weakening through recessions. Capital Goods, Materials, M/E, & Telco show the same trend but to a less extent.
- Rebound: Consumer Discretionary
- CD/Apparel, CS, and Retailing have a tendency to show solid rebounds in relative performance starting a few months after recessions begin. CS and Transportation show similar patterns, but have generally stronger performance through the entire recession.
- Sizes & Styles: Avoid Junk and Lean Defensive
- Junk displays consistently poor performance after the start of a recession (mods r gay and even they would know this). Defensives tend to outperform cyclicals, but Telecom and Utilities (which traditionally are defensive) did not display as strong a tendency to outperform.