Revisiting the Recession Playbook

Technology: In September I noted that the case for tech relied on too many "shoulds" and that I was underweight. Since then the sector had a couple of months of noteworthy outperformance but in the last couple of weeks the decline in tech has been much steeper. Tech, as measured by iShares DJ Technology Index Fund(IYW - Cramer's Take - Stockpickr) is down 15% vs. an 11% fall for the S&P 500 since Dec. 26.

A lot of people, both in TV interviews and in print, like technology for a slowdown. I think that is a mistake. I have been underweight and will stay underweight for the foreseeable future. I just don't think the argument for increasing tech spending holds water. We have been hearing this for a quite a while and it never materializes with any staying power.

Healthcare: This sector is kind of a no brainer. The idea is that no matter what is going on in the economy people will still take their medicine. Since Sept. 10, iShares DJ Healthcare Index Fund(IYH - Cramer's Take - Stockpickr) is up 2%, while the S&P 500 is down 9%. despite its 9% weight in Pfizer(PFE - Cramer's Take - Stockpickr), which is down 6%, Quite simply money flows into this sector when it looks like the market's cycle is turning.

Energy: Energy gives a mixed bag for a recession . There is some history for energy doing well during recessions but high oil prices are often a contributing factor to the start of a recession, which seems to trump the threat of less demand due to less economic activity.

I suggested an equal weight in September, which was correct in that the Energy Sector SPDR(XLE - Cramer's Take - Stockpickr) has down 1.7%, but it was wrong in that being overweight would have been the better position. Going forward a slight overweight is probably warranted unless the energy names you own are relatively more volatile than XLE, in which case equalweight should suffice.

Industrials: I suggested being underweight this group and I think that still applies. The Industrial Sector SPDR(XLI - Cramer's Take - Stockpickr)is down 10% from Sept. 10. Not every industrial stock will get crushed in a bear market but 30%-40% declines are common. This is just how it works. If you have a name that ends up dropping that much the chances are good it will come back during the next expansion. But if you end up holding on to a name that does endure that kind of a hit, you need to know whether the decline is a cyclical thing or a problem specific to your stock.