The U.S. economy was rapidly falling into a recession amid the COVID-19 pandemic in 2020. The Federal Reserve raised interest rates and kept them higher than expected as late as 2023, forecasting another recession. It then announced in November 2024 that, “Recent indicators suggest that economic activity has continued to expand at a solid pace.” The Federal Reserve maintained a somber tone but it brought the red flag down from the pole.
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The economy was rocked by a short-lived but gruesome period in the first quarter of 2020, sometimes referred to as the Great Lockdown. Only 32 stocks in the S&P 500 representing 6% of the total index posted positive returns during this period.
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These stocks increased for many reasons. Looking at which stocks did well can nonetheless show broad patterns as to what kinds of stocks may do better in economic downturns. These 10 S&P 500 stocks fared best in the first quarter of 2020.
Healthcare
Regeneron Pharmaceuticals was the stock that came out on top during the first quarter of 2020. It’s a biopharmaceutical company that develops and markets drug treatments for patients with various illnesses and diseases. Regeneron’s shares were lifted because of the hype surrounding a treatment it was developing to combat the COVID-19 virus like Gilead Sciences which also made the list.
Healthcare is a sector generally renowned for faring better during downturns. The reasoning behind this is clear: You need healthcare to live and are therefore much less likely to skimp on it even when your income declines. This is referred to as price inelasticity.
Not all healthcare companies are created equal, however, and recessions are likely to hurt companies with more debt and less cash flow. These enterprises have less ability to absorb losses and service their debt at the same time. It may therefore be prudent to stick to healthcare stocks that have low debt-to-equity ratios and avoid biotech startups that are still in their early phases.
Information Technology
Information technology was the most represented industry on the Q1 2020 list with three companies from this sector generating double-digit returns while the economy was in meltdown. These three outperformers were popular with investors not necessarily because of their defensive characteristics but because they stood to benefit from the global lockdown inflicted by the COVID-19 virus.
Citrix was buoyed by the rising use of video conferencing. NortonLifeLock benefitted from an increased need for cybersecurity and information backup solutions. NVIDIA was bolstered by surging demand for video gaming and home computer solutions.
Information technology can also be considered more resilient than other industries during a downturn. This sector has historically been viewed as cyclical.
Real Estate
Few people would associate a recession with a booming real estate industry but two companies from this sector outperformed in the first few months of 2020.
Data center real estate investment trusts (REITs) such as Digital Realty and telecommunication tower REITs such as SBA Communications tapped into business trends in early 2020 that included homeworking and the accelerated rollout of 5G technology. They proved to be the exceptions, however, because other REITs got clobbered during that period.
Real estate is also considered to be a very cyclical industry but there can be exceptions. Certain types of REITs are described as more defensive because people always need housing regardless of the state of the economy. A lot depends on the specific sector, the income produced, and the financial strength of each security.
Communication Services
The communication services sector is a broad one. It includes telecommunication companies, social media and internet search companies, streamers, and video game makers. Some of its biggest names are Facebook’s Meta, Google’s parent Alphabet, and Verizon and Netflix.
It’s no secret that Netflix thrived in early 2020. When people were forced to stay at home, a lot of people binge-watched movies and TV shows when they were forced to stay at home, lifting subscription numbers and the California-based streamer’s share price. It could be argued that streaming services are discretionary and people stop paying for them when times are hard but that wasn’t the case for Netflix at the beginning of 2020.
Consumer Staples
Clorox had a really good start to 2020 because its four-in-one disinfectant and sanitizer wipes were widely used to protect against the spread of the coronavirus. It wasn’t the only consumer staple to post decent returns when most of the stock market was struggling, however. Other high flyers included Kroger, Hormel Foods, General Mills, Costco, and Colgate.
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Consumer staples tend to do well during recessions because they supply everyday necessities. People still need to eat, wash, and brush their teeth when the economy hits rock bottom and they find themselves out of work.
All Recessions Aren’t the Same
All recessions aren’t the same. Each can be caused by different factors so they can vary in nature. One industry might thrive during one but it could struggle immensely during another.
The 2020 recession was particularly unique. The spread of a killer virus and an enforced lockdown aren’t things that happen very often. Many of the companies that performed best in the first quarter of 2020 did so because they stood to benefit in some way from the virus and lockdown, not necessarily because they were better equipped to withstand a recession.