Playing Defense vs Going on Offense: The Stock Market's Two Playbooks

Ever notice how some stocks moon during good times while others quietly keep printing cash during recessions? That’s not luck—it’s the difference between two totally different animals: necessity plays vs. luxury plays.

The Boring Money Maker: Necessity Stocks

Think about what happens when your wallet gets tight. You still need to eat, shower, and brush your teeth. That’s why companies making food, hygiene products, and household staples (like Proctor & Gamble, Costco, Kroger) are basically recession-proof. Even when markets crash, people can’t just stop buying toilet paper.

These stocks are the definition of “boring but stable”—they throw consistent dividends at you and don’t swing wildly. During the 2023 downturn, while other sectors got decimated, necessity ETFs like XLP actually gained ground.

The Adrenaline Junkie: Luxury Stocks

Now flip the script. When money flows and confidence peaks, people splurge on shit they don’t need—designer clothes, concert tickets, vacation splurges, luxury cars (hello Tesla). Entertainment companies like Live Nation, fashion brands like Ralph Lauren—these things explode in bull markets.

But here’s the kicker: the second unemployment rises or interest rates spike, consumers slam the brakes. These stocks are volatile as hell because spending on extras is the first thing to get cut.

The Numbers Don’t Lie

Look at what actually happened:

• November 2021 (boom times): Luxury stocks up 14.8%, boring staples up just 1.09%
• 2022-2023 (rate hikes + recession fears): Luxury ETF XLY crashed 17.79%, while staples ETF XLP gained 1.72%

So Which One Should You Own?

Simple playbook:

• Bull market + low rates → Load up on discretionary (they’ll outrun everything)
• Bear market + rate hikes → Rotate to staples (sleep at night, collect dividends)

The real pros don’t pick a side—they rotate between them based on what the Fed and economy are doing. Necessity stocks are your life raft. Discretionary stocks are your lottery ticket. You need both, just at different times.

The key metric: Watch the Consumer Price Index (CPI). Rising CPI = rising rates = danger for luxury stocks, tailwind for staples. It’s that mechanical.