There are certain economic indicators that capture investors’ attention without fail, and anything suggesting a cooling job market tends to fall toward the top of the list. That’s because the stock market and the unemployment rate are correlated— at least they have been for the most part. When unemployment is high, the economy tends to stall and stocks fall. The opposite is true when unemployment is low.
Inflation recently threw somewhat of a wrench into this correlation. But now that central banks appear to have a better handle on rising costs, this correlation is expected to continue. As we march forward into a period of uncertainty, job data is starting to look shaky, so it’s fair to assume we’re in for a bumpy ride on the market.
With that in mind, it’s worth thinking about adding some resilience to your portfolio with stocks that will continue to perform even in a cooling job market. There are a few ways to go about this. One is to look at companies that serve job seekers. These firms will have a larger group of consumers to serve and will likely see their business pick up.
Another good strategy is to look for businesses that appeal to people reining in their spending. That means discount retailers and those with strong brand power have the upper hand. Finally, it might pay to add some steady-eddies stocks to your portfolio. Those who pay a reliable dividend and offer necessities are a good place to start.
Microsoft (MSFT)
There are many reasons to buy Microsoft (NASDAQ:MSFT), one of which is its ability to thrive in a cooling job market. Microsoft’s most recent results showed the business is resilient despite the increasingly challenging environment. That’s thanks to the group’s impressive mashup of successful businesses— from cloud solutions to software and gaming; there’s no arguing about the earning power of this tech titan.
Where Microsoft will really shine in a cooling job market is with LinkedIn. The professional social network is one-of-a-kind, and it’s where job seekers will flock as they look to find employment. Aside from being able to use their professional network and browse employment ads, jobseekers can use LinkedIn’s suite of services to improve their appeal. From specific training courses to resume glow-ups, LinkedIn is able to help polish a candidate and improve their chances of getting hired.
Costco (COST)
Discount retailers tend to shine amid a cooling job market because they allow people to stretch their dollars a little further. Costco (NASDAQ:COST) offers the discount aspect and a layer of insulation against an economic storm. The group makes the bulk of its money from membership fees, which might sound worrisome in times of economic trouble. But so loyal are Costco’s members, the group has long held a renewal rate upwards of 90% for years— even through the pandemic.
The group’s most recent results showed shoppers are still flocking to its giant warehouses. The group’s on the precipice of raising membership prices, a move that some believe will send customers packing. However Costco’s track record of delivering quality at rock-bottom prices has earned it some die-hard shoppers. That’s why the membership price increase is likely to protect margins as intended rather than dent revenue.
American Electric Power (AEP)
When in doubt about the direction of the economy always look to utilities, which can hold up almost any condition— even a cooling job market. At the end of the day people will always need power, and American Electric Power(NASDAQ:AEP) is giving them just that while delivering exceptional net income growth. Not only does it generate electricity, it also delivers it around the country. This oversight of the entire value chain means the group can make efficiency improvements more easily and ultimately offer a compelling proposition to customers.
Plus, AEP pays a dividend yield of 4.3%. While that doesn’t shoot the lights out, the group has a history of increasing its payouts in line with earnings growth. And since AEP’s revenues are relatively predictable, this dividend is reliable— though no dividend is ever guaranteed.
On the date of publication, Marie Brodbeck held COST. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
