Glossary
Defensive Stock
A stock whose demand and earnings hold up in recessions, such as utilities, consumer staples and healthcare.
On this page
A defensive stock is one whose business keeps humming when the economy slows, because people keep paying for its products regardless. Households still buy toothpaste, groceries and prescription drugs, and still pay their electricity bills, in a Recession. That steadiness tends to make these stocks fall less than the broader market in downturns, and often lag it in strong rallies.
Typical defensive sectors
- Consumer staples: food, beverages, household and personal products.
- Utilities: electricity, gas and water providers, many with regulated rates.
- Healthcare: especially drug makers and insurers with steady demand.
- Some telecom and discount retail.
The contrasting group is cyclical stocks, whose profits rise and fall with the Business cycle.
How defensiveness shows up in the numbers
Defensive stocks typically have Beta below 1, meaning they have historically moved less than the market, and they often pay steady dividends.
What to watch for
Defensive does not mean safe. These stocks can still fall sharply in a broad crash, and their slower growth means they often trail in bull markets. Because many pay high dividends and grow slowly, they are sensitive to interest rates and can drop when bond yields rise, as utilities did in 2022. And valuation matters: when investors crowd into defensives for shelter, they can become expensive enough that the protection they offer shrinks.
Investors who follow Sector rotation tend to move toward defensives late in an expansion, though the timing is rarely clean.