Regular reports and commentary circulating this year all hint that the economy is headed for recession. As the U.S. and world economies find themselves in this limbo between ennui and catastrophe, one billionaire CEO spoke about what he thinks might be in store for the economy in the coming months. 

Jamie Dimon is the CEO of the banking giant JPMorgan Chase (JPM 1.04%), and his expertise in the world of finance gained from over four decades of experience gives him some level of wisdom about the current economic situation. That wisdom is telling him with some certainty that a recession is coming (if not already here).

This assertion is nothing new nor necessarily unique, especially in the economic environment we find ourselves in today. But Dimon's comments, offered at a conference in London, differ somewhat in that he presented some specificity and reasoning to back up his claim. 

Dimon calls his shot

At the top of the list driving Dimon's belief about an upcoming recession is data on interest rates and inflation. At the onset of the COVID-19 pandemic in early 2020, the Federal Reserve went heavily into quantitative easing in an effort to stimulate the economy and stave off a market and economic calamity. The Fed only recently shifted strategy to reverse that quantitative easing after it became clear that what was presumed to be transitory, or temporary, inflation was in fact persistent. Dimon called out the Federal Reserve, saying it "waited too long and [did] too little" to combat inflation.

Dimon said he believed inflation will eventually come under control, but it will come at a cost. Dimon predicts that within the next six to nine months the U.S. and much of the world will be in a recessionary environment. He said he thinks Europe is already in one thanks to the war in Ukraine, and that could be the catalyst for other economies around the world to slip as well.

Before it's over, Dimon sees the S&P 500 (^GSPC 0.25%) falling by another 20%. He added that the next market slide will be much more painful than the one we've already seen.

If Dimon and other economists are correct about the future, then investors should adequately prepare by rebalancing their portfolio and prioritizing allocation to companies and sectors that perform better in inflationary and recessionary environments.

By looking back at similar situations in the past we can get a better idea of what portfolios had success with economic conditions we find ourselves in today. History shows that to create a more inflation-resistant portfolio, maximize potential and minimize risk, investors should prioritize more sector-focused stocks like consumer staples or commodities and diversifying with gold that have proven history of providing value in tumultuous times. 

Re-strategize to find new opportunities

For investors looking to capitalize on returns in a stagflationary economy, there are a handful of options to consider but one, in particular, can ensure you are exposed properly to entire sectors. They are called exchange-traded funds (ETFs) and they allow investors to spread their money across various companies that make up a sector instead of having to pick just one. Fortunately, there are ETFs for just about every sector and strategy. 

If looking for a solid ETF with exposure to commodities, investors should consider the United States Commodity Index Fund (USCI 0.42%). This fund selects 14 commodities each month and holds at least one precious metal, industrial metal, energy, livestock, soft, and grain commodity to provide adequate exposure. In the last year, it has produced a return of 24%.

A great consumer staple option would be the Consumer Staples Select Sector SDPR Fund (XLP 0.13%). This fund has nearly $15 billion in assets under management and provides exposure to some top companies like Walmart, Coca-Cola, Procter & Gamble, and Costco just to name a few. Traditionally this sector performs well in any economy since people will always need products like food, drinks, and everyday necessities. Over the last year, it has traded sideways and barely broke even but when considering that the S&P 500 is down 15% this should be viewed as a win. 

There are even gold ETFs out there. One of the most prominent gold ETFs is the iShares Gold Trust (IAU 0.41%). With a lower expense ratio than its competitors, this fund tracks the day-to-day price of gold for a low cost and is a great way to diversify your portfolio in an inflationary economy.

The path ahead

As we enter this next phase of the economic cycle, investors shouldn't view Dimon's comments as a prediction of catastrophe. Instead, an opportunity is at hand. Realign your strategy to consider current conditions and prioritize increasing exposure to companies with a proven track record of success. If your portfolio is too focused on growth, consider diversifying and incorporating some value stocks. Dimon said JPMorgan Chase will be following a "very conservative" path in its investment choices for the foreseeable future.

Remember too that there are companies out there today that are trading at deeply discounted stock prices that will come out of this economic downturn with their business models intact and well-prepared for the next market growth cycle. Look too for companies and industries that have a history of navigating through recessions and continue to provide value to people even in periods of economic downturns.

Whatever investing direction you take, remember that smart investors focus on good opportunities, even when recession looms.