The Dow Jones Industrial Average gave up roughly 208 points today after the latest reading of the Consumer Price Index (CPI) came in hotter than expected. The CPI tracks the prices of a basket of daily consumer goods and services and is one way investors track inflation. The CPI rose 9.1% on a year-over-year basis in June, more than the 8.8% economists had been projecting.
The one sliver of hope of inflation potentially peaking in the report is that the CPI was driven by an 11.2% year-over-year increase in gasoline. Gas prices have started to come down in recent weeks.
The White House said this morning that they believe the report is "out-of-date" and "does not reflect the full impact of nearly 30 days of decreases in gas prices, that have reduced the price at the pump by about 40 cents since mid-June."
Still, the report makes it likely that the Fed will follow through with a three-quarter percentage point increase to its benchmark overnight lending rate later on this month. The more aggressive the Fed continues to be with rate hikes, the greater the likelihood of a recession. The yield on the two-year U.S. Treasury bill has now surpassed the yield on the 10-year U.S. Treasury bill, which some see as a sign of an imminent recession. The inversion today reached its widest level since 2000.
As a result, investors poured into recession-proof stocks today. These are the three Dow stocks they bought the most.
Gearing up for a recession
Nike (NKE 0.61%) was the top finisher in the Dow today, with shares gaining 1.3%. Analysts have been quite bullish on Nike, assigning the athletic apparel brand, which currently trades at around $105 per share, a median price target of $130 per share.
With an incredibly strong brand, Nike has the ability to pass on higher costs brought about by inflation to its customers without alienating too many of them.
Comfortable fitness clothes have also become more popular after many people gained weight during the pandemic, and as the workplace becomes more casual, according to analysts at the investment bank Jefferies Financial Group.
The second-best finisher in the Dow was Home Depot (HD 0.81%), which finished the day up 0.72%.
Home Depot has thus far worked its way through inflation extraordinarily well. In the first quarter of the year, the retailer grew sales by close to 4% year over year, as the company succeeded in passing on higher costs to its customers. One potential explanation is that most people are spending more time in their homes, which makes home repairs and fixing things more important than it used to be.
Finally, the consumer goods powerhouse Procter & Gamble (PG -0.07%) finished the day 0.66% higher.
Procter & Gamble is the parent company of brands like Pampers diapers, Tide laundry detergent, and Bounty paper towels, all things that consumers should keep buying even if their finances start to tighten up.
Is a recession coming and should you prepare?
I think there is a pretty good chance the U.S. economy will experience some kind of recession in the near future, but it may only be modest and it may actually help some of the issues plaguing the stock market and economy right now.
With gasoline and rent prices so high, a modest recession could help get those back in line and make them more attainable for everyday consumers. The key will be to look at how the labor market holds up, but I don't think it's a bad idea to buy some more recession-proof stocks.
My favorite of these three is Procter & Gamble because their products are more of a necessity than Nike's or Home Depot's. P&G has also paid a dividend for 132 straight years.