With interest rates rising at a near unprecedented pace, global financial markets are increasingly pricing in the risk of a recession due to expectations of slower economic growth triggered by a drop-off in consumer activity.

The stock market may not share a perfect correlation with the economy, but concerns about a recession do often impact investor sentiment. 

Nonetheless, not every industry segment is susceptible to a downturn in the global economy. Yes, some areas of the economy are directly impacted when a recession takes hold, however, there are also some industries that we might call recession-proof', where demand tends to remain relatively steady, or they may even perform well during a recession. 

If you want to read how to protect your portfolio during a recession, read here.

Of course, there are no certainties in the stock market as far as safe' stocks or industries, and the playbook is sometimes re-written as we saw at the start of COVID, but these five industries have fared well during past recessions.

Consumer Staples

Regardless of the macroeconomic environment, people still need basic household goods. For example, toiletries like toothpaste, soap, and toilet paper, or items of sustenance such as bread, rice, and milk, among others. Even pet supplies would be considered a consumer staple. 

Demand for these goods doesn't decrease as households still need to keep food on the table, and take care of their hygiene needs. This is in contrast with more discretionary purchases like eating out, going to the cinemas, or travelling. Following the Great Recession, restaurant spending didn't return to pre-recession levels until 2016, but grocery store spending was robust throughout.

There are a number of prolific companies that operate in this space including Procter & Gamble (NYSE: PG), Unilever (NYSE: UL), and Colgate-Palmolive (NYSE: CL). Each of these companies boast a portfolio of brands and products at different price points across the consumer staples segment, sold right throughout the world.

Supermarkets and Discount Retailers

Supermarket giants are ultimately the ones that sell consumer staple goods, but they also function as price-makers. This means they often have the potential to pass on inflationary costs to customers in order to recoup higher expenses. 

Locally, this includes the likes of Woolworths (ASX: WOW) and Coles (ASX: COL), while US players such as Walmart (NYSE: WMT) and Costco (NYSE: COST) have established footprints across the globe.

On the other hand, discount retailers tend to grow in popularity during a recession thanks to the shift towards more price-conscious shopping when economic conditions get tough. This is because shoppers tend to adjust their preferences and buy generic goods, items in bulk, on those on discount. Price leaders tend to shine during these times.

In the US, stocks from this industry include Dollar Tree (NASDAQ: DLTR) and Dollar General (NYSE: DG), while Australian investors might be familiar with discount variety chain store Reject Shop (ASX: TRS). These companies were some of the strongest performers coming out of the last prolonged economic downturn.

If you want to take a broader view, fast food is another form of discount retail that tends to do well during a recession. Even if people lose their job, they still need to eat, and if they cut back on restaurants, they are more inclined to consider fast food franchises like McDonald (NYSE: MCD) or Collins Foods (ASX: CKF). 

Addictive Vices

While recessions might be viewed as a time where consumers tighten their wallets and completely cut back on unnecessary expenses, history tells us something a little different. In fact, many consumers maintain spending on addictive vices', including things like alcohol, nicotine, sugar, and caffeine. 

Ultimately, addiction has the potential to override economic concerns. Many of the product categories that might be considered addictive are examples of inelastic goods, where demand remains unchanged as prices rise, or economic conditions get tough.

With that said, preferences do tend to shift during tougher times as consumers opt for more affordable products that satisfy their addiction. As they say, sin wins when the economy loses.

Some of the stocks that operate in sin' sectors include Constellation Brands (NYSE: STZ), Hershey (NYSE: HSY), and the likes of Altria Group (NYSE: MO), Philip Morris International (NYSE: PM), and British American Tobacco (NYSE: BTI).

Healthcare and Beauty

Healthcare is an essential that, for the most part, is unaffected by a recession. If anything, spending in this area tends to be prioritised over other areas of the economy given how important it might be in terms of keeping healthy. 

Of course, there are a number of sub-industries within the healthcare sector. With an ageing population front and centre, the aged care sector is one that might be expected to continue growing even through a recession.

Similarly, pharmaceuticals and medical services are considered non-discretionary as people who depend on treatments continue to demand them throughout a recession, and this has the potential to benefit pharmacy operators like CVS Health (ASX: CVS) and Sigma Healthcare (ASX: SIG). On a completely different note, consumers typically continue to spend on beauty products during an economic downturn.

Economists have even given this phenomenon a title, dubbed the lipstick effect', which governs that smaller luxury purchases like lipstick take priority over larger luxury purchases like a new car or holiday.

Ulta Beauty (NASDAQ: ULTA), The Estée Lauder Companies (NYSE: EL), Coty (NYSE: COTY) all operate within the cosmetics and beauty industry. The latter two names feature a non-cyclical product portfolio that historically has done well during tough times.

Funeral Services

As we've come to know, the only two things that are certain in life are death and taxes. When a recession hits, tax revenue might drop off if unemployment soars. However, as grim as it might be, the funeral services industry continues to operate with little impact in terms of demand.

One could argue that families may change their funeral services plans during tough economic times, but data suggests that deep recessions are intrinsically linked with higher mortality rates, especially in developing economies.Both the US and ASX share markets play host to a number of companies in the funeral services sector, including InvoCare (ASX: IVC), Propel Funeral Partners (ASX: PFP), and Service Corporation International (NYSE: SCI).

Final Takeaway

While there is no guarantee that every company in a recession-proof' industry might do well during tough times, these areas of the economy tend to fare better in the midst of an economic downturn, and some have even thrived as a result of broader changes in consumer activity.

The  one thing these industries have in common is that demand for their goods and services tends to be largely consistent throughout the economic cycle, and rising interest rates have a far less tangible impact on these areas of the economy than discretionary or luxury segments.