Are We in a Recession? Why a Recession-Resistant Portfolio Strategy Is More Important Than Ever

Every few years, investors get jolted awake by a headline that questions the strength of the economy. The latest? The government’s annual job revision wiped out 911,000 positions from the previous count—a 0.6% drop and the largest downward adjustment in over a decade.

This isn’t just statistical housekeeping—it's a stark indicator that even our supposedly "settled" data, like employment, can shift dramatically under the surface. Christine Cooper, Chief U.S. Economist at CoStar, noted: “This is the biggest one in 10 years.” Markets and policymakers are rattled—and sophisticated investors should be, too.

Why You Rarely Hear “Recession” Until It’s Too Late

Recessions are almost always called in retrospect. By the time the National Bureau of Economic Research (NBER) formally labels one, we have usually passed many warning signs.

Consider the Great Financial Crisis: the recession began in December 2007, but the headlines, the panic, the portfolio losses came later—after unemployment spiked, GDP plunged, and the S&P 500 had already lost nearly half its value.

If you wait for the label, you’ll generally already be experiencing the pain. Preparing in advance—before a recession is widely acknowledged—is not optional; it’s strategic.

Current Potential Indicators: What Signals Are Flashing Red?

To build a strategic case, here are some of the most credible current data points pointing toward economic softening:

• Employment Weakening & Job Revision: As mentioned, ~911,000 fewer jobs were created over the past year than initially reported. Plus, August showed only ~22,000 new jobs added, far below expectations. The unemployment rate has crept up to around 4.3%, its highest since 2021. The Guardian+1

• Leading Economic Index (LEI) Declines: The Conference Board’s Leading Economic Index is still showing a negative six-month growth rate. Pessimistic consumer expectations and weak new orders are dragging it down. The Conference Board

• Industrial Production & Capacity Under Pressure: Industrial output has missed forecasts; some recent monthly declines in industrial production and softening capacity utilization are warning signs. Trading Economics+1

• Yield Curve Behavior: Although not always fully inverted at every term, the yield curve (short-term vs long-term rates) is behaving more flatly than normal—historically one of the more reliable recession forecasters, with weeks to many months lead time. Current Market Valuation+2Morningstar+2

• Inflation & High Rates But Cooling: Inflation remains above target in some measures (CPI ~2.7% annual), though some cooling signs are present. But high interest rates mean cost of capital remains elevated, particularly affecting real estate development and leveraged assets. U.S. Department of the Treasury+2Deloitte+2

Together, these suggest the economy is more fragile than many headlines imply. Not guaranteed recession, but elevated risk, especially for overleveraged or speculative assets.

Strategic Approach: The Best Strategy for This Environment

Given these risks and signals, the optimal strategy is not to try to predict exactly when a recession will start—but to position to benefit (or at least protect) when values drop. Here’s how:

1. Be Ready to Buy on Sale

   When real estate values dip—whether in apartments, self-storage, or other income-generating properties—it’s an opportunity. Investors with liquidity (“dry powder”) can acquire high-quality assets at distressed or discounted pricing.

2. Focus on Cash Flow & Resilience

   Rather than chasing speculative upside, emphasize assets and sectors that perform during economic downturns: multifamily rentals, storage (RV, boat), healthcare real estate, etc. These provide relatively steady income even when capital values stagnate.

3. Maintain Capital Preservation First

   Avoid over-leverage. Use debt conservatively. High rates penalize high service costs; anything that amplifies downside risk should be minimized.

4. Stress Test Under Multiple Scenarios

   Model what happens to your portfolio if vacancy rates double, interest rates stay high or rise further, or unemployment jumps 2-3%. Only keep assets whose cash flows, debt coverage ratios, etc., hold up under stress.

5. Diversify by Liquidity, Geography & Sector

   Real estate is illiquid; but having a portion of your portfolio in very liquid assets (cash, short-term treasuries), or in geographies/sectors less correlated to national trends (e.g. markets with supply constraints) helps cushion the blow.

6. Be Opportunistic with Distressed Deals

   During downturns, sellers often panic or get forced. Non-performing mortgages, REOs, owner-occupant conversions, or even private deals where financing is hard to get—these are where strategic capital shines.

How Recessions Hit Different Asset Classes

• Stocks – Highly volatile. Lots of downside if earnings miss expectations or credit gets tight.

• Bonds & Treasuries – Can act as safe havens but rates staying high can make bond duration risk painful.

• Commercial Real Estate (CRE) – Development slows. Rents may decline. Higher finance costs and tenant risk increase.

• Multifamily Real Estate – More resilient. Rental demand tends to hold up or even rise when people can’t afford to buy homes.

• Niche Storage (Self-storage, RV/Boat) – Demand often increases during economic transitions: downsizing, moving for job loss, etc.

• Defensive Sectors in Equities – Staples, healthcare, utilities tend to outperform in downturns.

Building a Recession-Resistant Portfolio: What “Best Strategy” Looks Like

Putting the above together, here’s what a “best strategy” framework should look like (for high-net-worth or institutional investors):

Element	Why It Matters	Strategic Move
Liquidity / Dry Powder	You need buying power when others are panicking	Keep 10-20% of real estate exposure in cash or highly liquid vehicles; preserve debt headroom
Conservative Leverage	To avoid being squeezed by rising rates or credit tightness	Use fixed-rate debt; avoid exotic financing; keep DSCR (Debt Service Coverage Ratio) conservative
Prioritize Deals with Built-in Margin of Safety	Ensures even with declines, you're still solvent and profitable	Buy below replacement cost; require higher capitalization rates when buying; look for assets with deferred maintenance or under-management
Geographic & Sector Diversification	Not all markets or asset types are equally impacted	Spread across populous vs supply constrained markets; include resilient sectors like multifamily, storage, healthcare
Lead Time via Signals	Recognize recession indicators early and act before market consensus	Monitor employment trends, LEI, yield curve slope, industrial production; adjust exposure as warning signs mount

Final Word: Don’t Wait for the Headlines

The job revisions, declining industrial production, flattening yield curves—they are warning flares, not just statistical quirks. By the time the Wall Street Journal or FT runs the headline “We Are in a Recession,” much of the damage is already done for reactive investors.

The best investors aren’t those who guess exactly when the bottom will hit—they are those who prepare in advance: positioning for weakness, preserving capital, maintaining optionality, and being ready to deploy when values drop. Real estate markets often lag broader financial indicators—so even while equity markets turn, there will still be real opportunities in property.

So: ask yourself not “Are we in a recession?” but “Is your portfolio built so that when recession signals turn into recession reality, you can buy, hold, and profit safely?”