For the last couple of months, the talk of a recession has been keeping financial analysts up at night. Wall Street veterans are constantly flagging the risks of a stock market downturn.

Now, they’re offering advice on how investors should prepare their portfolios to weather the storm. And defensive stocks are in. 

In its May report, the investment firm Morgan Stanley noted that the risk of a recession has gone up materially.

With the increasing number of shocks currently hitting the economy, the country could tip over a recession within the next 12 months.

One of the factors mentioned in the report is the war in Ukraine – which could push oil prices to $150 a barrel. The crushing cost pressure on companies and the strong dollar were also cited. 

Ed Yardeni, a Wall Street veteran, said in April that there was about a 30% chance of a recession hitting the U.S.

With the events that unfolded last week, he raised that percentage to 40%. Jane Fraser, Citi’s CEO, said in an interview that she is sure that Europe is well on its way to a recession as well. 

The conflict in Ukraine has impacted the global economy and caused energy and food prices to rise significantly.

Both the U.S. and the U.K., along with many other countries, are struggling with inflation that has increased to a decades high. 

Stock indexes have declined sharply since their peak in the last quarter of 2021 and January 2022. Nasdaq lost about 23% since the beginning of this year, and the S&P 500 dropped 13% as well.

So how can investors ride out the ongoing turbulence that’s happening in the stock market? See below what financial experts have to say on the matter.

Since the stock market volatility isn’t going away anytime soon, Morgan Stanley said investors should consider defensive sectors to invest in.

In its May report on its American market outlook, shares of health care, real estate and utilities are recommended. 

With the Energy sector notwithstanding, all other top performing segments have come from more defensive ends of the spectrum.

Morgan Stanley said it doesn’t believe defensive stocks will outperform in the next quarter. However, they should provide some protection for investors.

That is because defensive stocks provide stability in the form of dividends and earnings, regardless of how the stock market is. Other stocks, called “cyclicals” suffer the effects of economic cycles. 

The Wells Fargo Investment Institute doesn’t measure words when talking about recession.

According to them, it requires extra patience from investors before taking part in any investment opportunity. Even when it comes to defensive stocks.

Wells Fargo’s senior global market strategists say that investors should take a step back when it comes to reinvestments.

That is because bear markets can last for a while, and sometimes create drawdowns of about 30%. 

This should come as a given, but it’s important to invest in quality bonds. Financial strategists say this is the time to stay away from high-yield bonds altogether.

As markets dive deeper into a late cycle, Morgan Stanley states that it’s important to choose quality over junk.

Quality bonds have been outperforming since November of last year, then the hawkish Fed shift started. 

Not only that, but the alluring income offered by defensive stocks will most likely offset the impact of widening spreads should a minor recession occur.