Bonds with safe yields are a good bet in a deflationary environment, when fixed-income returns increase their buying power as prices fall, says Ned Davis Research analyst Joe Kalish.
Stocks are trickier. Merrill Lynch economist David Rosenberg says investors should favor companies with healthy balance sheets, as high debt becomes an added burden. Financial stocks could suffer for that reason, while retailers could go through tough times as they make less money off the goods they sell.
Sectors that sell necessities like consumer staples, health care and utilities are good places to look, as they are considered safe during unsteady economic times.