The S&P/ASX 200 Index (Index:^AXJO) is heading for its best session this month on growing optimism that the global economy is finally on the path to recovery.
Markets may have passed peak COVID-19 pain and investors should be reassessing their ASX share portfolio to best position themselves for the post pandemic world.
If you are looking for clues on the stocks you should and shouldn't hold, Macquarie Group Ltd (ASX: MQG) may have some answers as its analysts looked at stock returns in the 1990 recession.
Doesn't repeat but rhymes
That was the recession we had to have where the unemployment rate jumped to over 10%. Economists expect a similar outcome for the job market during this coronavirus-inspired recession.
"We still think the market is in a range, as valuations limit upside. But without a second wave of Covid-19 and shutdowns, the worst of the contraction may have passed, and March 23 is the low," said the broker.
"This puts us in Late Contraction; that part of the recession where stocks often go up even when unemployment rises above 10% as it did months later in 1990-91."
Go overweight on resources
One sector that the broker is overweight on during this part of the market cycle is resources. The BHP Group Ltd (ASX: BHP) share price outperformed during the recession two decades ago and Macquarie thinks this will happen again.
Mind you, it's not only BHP but also the other iron ore producers that Macquarie are tipping to be big winners this time round. This means you should add Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) to the list as well.
This is because the group is expected to generate strong free cash flows that can be used to pay dividends.
Gold standard
Gold miners also found a place in Macquarie's model portfolio. The broker added Evolution Mining Ltd (ASX: EVN) and Saracen Mineral Holdings Limited (ASX: SAR) to its overweight list.
Another sector to find favour is communications as media stocks outperformed in the last recession. Macquarie is backing NEWS CORP/IDR UNRESTR (ASX: NWS) over Nine Entertainment Co Holdings Ltd (ASX: NEC), and is keeping its bullish view on Telstra Corporation Ltd (ASX: TLS) for its defensive qualities.
Bet on consumers
Macquarie is also encouraging investors to increase their exposure to consumer discretionary stocks as cyclical stocks tend to outperform in a recovery. Stocks highlighted by the broker are Crown Resorts Ltd (ASX: CWN), Wesfarmers Ltd (ASX: WES) and Aristocrat Leisure Limited (ASX: ALL).
Sectors to avoid
On the flipside, Macquarie is recommending investors go underweight on financials, healthcare and technology.
It is also suggesting investors reduce their exposure to Australian real estate investment trusts (AREITs).
