There is constant talk of a recession. In fact, some people cannot stop themselves and there will actually be stagflation along with the recession. In other words, both prices will continue to rise, inflation will increase and the economy will shrink. On the inflation front, we have seen that prices do not increase so far. Inflation in America is around 3%. You can't exactly call it a stagflation figure. So how are things going on the recession front? It is a little more complicated there. I have always been very assertive in 2023-2024 that America will not enter a recession, and I was right. My tone has changed a little since the beginning of 2025. As you know, there is currently a 30%-40% chance that America will enter a recession. The person who can stop this is Donald Trump and his economic policies, and they can actually do it easily. Because when we look at the concrete data right now, there is no recession. The expectations side is a little distorted. If Trump and his administration do not correct the expectations, those expectations may come true. For example, if people are afraid of being laid off, they may reduce consumption after a while. Consumption creates recession, and recession really triggers layoffs. If company executives are afraid of an economic slowdown, they will reduce capital spending after a while. The decrease in capital spending shrinks the economy, and a recession begins.

Expectations were disrupted by Trump's tariffs. Although Trump has already made it clear that he will take significant steps back from those tariffs. But people are still eagerly waiting for April 2nd. It seems impossible for complete clarity to emerge from April 2nd. Some tariffs may be postponed even further, and since investors, business people, and consumers do not like such uncertainties, they are worried. Well, let's say the US enters a recession, look, I repeat, my expectation is definitely not in this direction, but I do not have zero expectations. It is possible for Trump to make mistakes, the US Federal Reserve still says the economy is good, and it is possible for them to make mistakes. Therefore, we cannot say that the possibility of a recession is now zero.

Also, do not forget that one of the issues that kept the American economy afloat was government spending. Government spending is being seriously cut. Recession is not my main view right now, but the probability is a little higher than last year. So what does recession really mean? How does recession affect markets? It is useful to learn which assets it benefits and which assets it destroys, just in case. Because recessions are inevitable in economies, economic cycles require this. We experience some mild and some severe recessions every 5-10 years. The last time we experienced a very short two-quarter recession with Covid, for example. In this context, in my article today, I will try to provide historical information about what happens in a recession, what goes up and what goes down. When my article is finished, you will be better prepared for a recession.

So, should we start preparing for a recession right away? No. Because we cannot know when a recession will come, and usually when markets say a recession will come, it does not come, it comes suddenly with a surprise. Therefore, it is a little difficult to prepare for a recession in advance. But there is a lot to do after it starts. Here we will see them together today. First of all, are the markets pricing in a recession right now? My answer is definitely no. The declines in recessions are much more severe. Because the current declines, especially in the S&P 500, are not even at the level of correction. Everyone is panicking like this, but we are experiencing a very reasonable period of pullback in the stock markets. For example, when we look at the S&P 500, despite all this noise, the S&P 500's loss since the beginning of the year is around 2.53%, which is nothing. It is below the normal corrections of the markets, and 6.14% behind its peak. As you know, there was a great excitement about Trump after the beginning of the year. It is only 6.14% behind that peak.

Markets pullback by around 20% in recessions. We already see pullbacks of up to 10% as daily corrections. Between 10% and 20% is the correction zone, and it is a bit dangerous. Bear markets start only when they go below 20%. Bear markets usually start with recessions. In other words, we are not even close to there, the S&P 500 went a little bad for a while. It recovered a lot. Moreover, when we look at the performance of S&P 500 in the last 2 years, we see that the increase is 71%. I have been a bull since October 2022. I had stated that I see the first part of the year as a bit dangerous. I had stated that we went a bit too fast. After a 71% almost breathless increase in 2 years, it is quite normal for the market to make a 6% correction. When we look a little more, the corrections are a bit more severe, we have regressed by 5.92% since the beginning of the year. There has also been an 8.25% pullback since the peak. But Nasdaq's rise was also in line with it. Nasdaq had increased by 109.57% in 2 years. I was a Nasdaq investor throughout this period. Many stocks made around 300% - 400% during this period.

The important thing is that the market has not yet priced in the recession, what the market has priced in is a little correction. Because a lot of money was made especially on technology sites. People are trying to take their money from there and take it to European stock exchanges. They are taking it to bonds, moving it to safer places, they are saying let's wait a bit in cash and see. And also the fear of growth, wondering if Trump's policies will slow down growth. This is not pricing in a recession, if a recession comes, prices could go much lower. There is a great article on Wednesday about how far they can go. Amy C. Arnott from Morning Star shared it and Ms. Amy asks the following question; What are the best investments during recessions? Amy's first chart is quite striking, it looks at asset classes. It looks at different recession periods and which asset class has performed well during these recession periods.

First of all, gold stands out here. Gold loves recessions, it has been positive in recessions on average by 7.7%. It went up by 17.22% in the 1980 recession, 11.77% in 2008, and 7.48% between February 2020 and April 2020. In other words, those who have gold are not bothered by the recession. Also, those who have US bonds are not bothered. There are different US indices here, for example, the US total bond index has provided an average return of 9.13%. Corporate bonds are not bad either, they are high-yield corporate bonds. Although they fall in certain places, they do not fall that hard and the total is 4.52. But the best thing is US treasury bonds. For example, US medium-term government bonds have provided an average return of 9.82%. US long-term government bonds have provided a return of around 10.04%, here the longer the term is the better. Because the bond becomes more sensitive to interest rates as the term gets longer. When there is a recession, the value of the bonds you have suddenly starts to increase because central banks lower interest rates. So treasury bonds and gold perform well in recessions.

So what happens to stocks? The situation there is a bit more controversial. For example, the US broad stock index, one of the broad indexes consisting of many stocks, shows a negative performance on average. Its negative performance in recent recessions is even more severe. Emerging markets cannot escape this either. There is an average decrease of 11.77% there as well. There is a stock index called the non-US world index, which has a decrease of 9.25. Stocks do not perform well in bad markets. When we look at each sector, there are different results, but they do not show good results.

So what happens to commodities? Commodities are not doing well either, which is quite normal. As economies shrink, the need for commodities decreases. There is a decrease of 9.27% ​​there as well. So if you see a recession and believe that a recession has begun, it would be beneficial to avoid stocks to a large extent. Instead, taking refuge in gold and US treasury bonds seems to yield better results. Morning Star's analysis categorizes stocks in different ways. For example, they look at it from an investment factor. Different categories such as US small-cap stocks, US high-dividend yield stocks, US minimum volatility stocks, US momentum stocks, value stocks and quality stocks.

First of all, they are all sensitive to recessions, the stocks we call quality stocks are the least sensitive. Small-cap stocks always take a beating, they took an average of 9.2%. They took a lot of beatings in the last two recessions, they still haven't gotten over it. Their dividend yields are a little better, but they are not huge either. For example, they took a hard beating in the 2008 crisis. In other words, it is not enough to escape to dividends. Because in order for a company to pay dividends, its performance must be good. In a recession, the company's income may decrease, so they also sell. Minimum volatility is an interesting area, in other words, the company's stock does not fluctuate at the same rate as the market in general. The vast majority of stocks in my portfolio are high volatility stocks. If I'm not mistaken, Tesla's beta is like 3, meaning if the market goes up by 1, Tesla can go up by 3, these are high volatility. The situation is a little better in low-volatility stocks, meaning stocks with low beta, but they are still negatively affected.

Momentum stocks are also getting beaten up. Momentum stocks are stocks that are bought just because others are buying them. In other words, there have been incredible momentums recently, especially at the beginning of the year. Palantir was one of them for a while, it turned into a momentum stock. They are getting beaten up hard and interestingly, value stocks are also getting beaten up hard. Value stocks are always stocks that are priced below what they should be and they have quality results in the long term, etc. No, they are getting beaten up too, meaning no investment factor can escape this. Quality stocks are getting beaten up a little less, we will get back to what that means in a moment.

The article in Morning Star also categorized stocks according to their investment style. Large Blend means that this company is both growing very fast, a growth stock and a value stock. You can put Amazon here as an example, maybe, it is both a growth stock and a value stock. Because the company has net cash flow, it has a very serious profitability. On the other hand, I am trying to give an example that it continues to grow rapidly. Tesla can enter here in large-scale growth stocks. Now Tesla is not growing much these days, but it can be categorically seen as a growth stock. Yes, it has profitable cash flow, but the valuation of the company is much higher than this, its growth valuation is this, or if we give an example of large-scale value stocks, for example, General Motors. So, for example, enter the valuation of the company, compare it to Tesla, it is much lower. However, profitable cash flow seems positive in these matters. He also separated them according to their scales as large, medium and small, and I don't know why he tried so hard. Because all of them have negative results, they all give negatives.

Large-scale growth stocks seem to be the best place to go. In other words, they behaved relatively well, especially in the 2020 Covid crisis. But when we average them all, they fall around 8-10% in different recessions. There doesn't seem to be much room for salvation here either, and a final perspective is sectoral. This is important because when we look at it as a sector, there seem to be some places to escape. For example, the healthcare sector is one of the good places to avoid. Indeed, since the beginning of this year, when growth fears and recession concerns came into play, the healthcare sector had done well. Because investors look at it this way; they think people will eventually do whatever it takes to spend on healthcare, this is going well.

There is also an area we call defensive consumers. People who sell toilet paper, detergent, soap have to buy it no matter what. That's why it's going relatively well there too. Precious metal stocks are doing well. For example, there are gold miners here. This category is doing well, all the others are getting beaten up. Energy stocks are getting the most severe beating. The main reason for this is that demand for energy decreases when there is a recession and economies shrink. Cyclical consumer products like automobiles are getting beaten up pretty good, industry is getting beaten up really bad 13.99%, infrastructure of course no one deals with infrastructure during a recession. So there are three sectors that can escape here; healthcare, defensive consumer Coca-Cola for example and precious metal stocks. Other than that, all of them are getting beaten up pretty hard. The energy sector seems like the sector that should be avoided the most. In short, stocks are hard work in a recession.

You can short stocks, that's a different investment style, but if the recession is clear, it might be good to get out of stocks completely. Of course, this also depends on the size of the expected recession. For example, the 2020 recession was very short, it lasted two quarters, we even realized it was a recession later. In other words, stocks were already broken and going up, so the depth and duration of the recession are also important. As the depth increases and the duration extends, stocks get battered more. But strong companies, that is, those that can continue to grow even in a recession with ongoing growth, those with strong cash flow and strong balance sheets, have much stronger returns from bad times. That's why it's very important to structure your portfolio correctly. But let's say you read all these and these are all well and good, but what should I buy about them? Which ETF, which stock should I buy? I will give you a tool for this. Of course, I won't make any suggestions, but I will suggest a tool for you to look at these now.

Our tool is called Seeking Alpha, Seeking Alpha gives us the largest ETFs in different categories such as US Equities, American stocks, and here Small Cap, Micro Cap, Mid Cap, Nasdaq 100, Dow Jones, S&P 500. So you don't have to buy this ETF, but for example, the IWC ETF is similar to the largest ETF of Micro Caps, the smallest stocks. Of course, you can go to an environment like chat GPT, an environment like Grock and research alternatives to IWC, or you can go to the IWC ETF website and do your own research on what's in it, which stocks are in it. I just gave you an example.

If you remember, we looked at sectors. Here you can see sector ETFs, like technology's XLK. Again, when you click on this, we see that they manage a $67 billion fund, and when you look at the details of the XLK ETF, you can see which stocks they hold in their portfolio, what their performance has been so far, and you can search for different alternatives to XLK. If you remember, we looked at stocks based on factors, such as value stocks, growth stocks, quality stocks, low volatility stocks, high dividend stocks, momentum stocks, dividend stocks, and equal weight stocks. You can see all their performances here. Again, when you click, it is possible to reach the details.

On the other hand, of course, there is a whole world in front of us. ETFs consisting of different stocks in the world, country ETFs, bond ETFs, American treasury bond ETFs, the most popular of which is TLT. But there are others here, commodity ETFs, those that invest directly in commodities, for example, gold has done very well, it is 15% up since the beginning of the year, silver is 16% up since the beginning of the year, and of course, currency ETFs. In other words, there are ETFs such as the US dollar ETF and the British pound ETF. This can be your starting point. After receiving this data from Seeking Alpha, alternative ETFs can be researched.

Leveraged ETFs can be researched. Inverse ETFs, which we call inverse ETFs, are those that promise the opposite of the return of this ETF. For example, the Growth ETF says that IUSG stocks will go up. The exact opposite of growth stocks, inverse ETFs, are those that play for their fall and make money this way. You can develop your ETF pool by learning these or you can choose alternative stocks for yourself from among the ETFs. My favorite aspect of the American stock markets is that there is a lot of data and information. Seeking Alpha is a very good platform in this regard, I think you will enjoy it if you use it. Here you can find news about companies, news about the market, deep company analysis, deep ETF analysis, many things. I hope we don't have to deal with recessions. They are difficult things but they are a part of life, if they come, we will see together how to manage them.

The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.