Defensive Stocks: The Unsung Heroes of the Market Selloff

In the tumultuous world of stock markets, where volatility is the norm and uncertainty reigns supreme, investors often seek refuge in sectors that offer stability and resilience. The recent global selloff triggered by President Donald Trump's sweeping tariffs has sent shockwaves through the market, with major indexes experiencing some of their worst daily losses in years. However, amidst the chaos, certain sectors have bucked the trend, proving their defensive characteristics and providing a safe haven for investors. These sectors include utilities, healthcare, and consumer staples—think French fries, soda, cigarettes, and other essential products that people continue to purchase even during economic hardships.

The defensive characteristics of these sectors contribute to their resilience during market selloffs due to their ability to provide essential products and services that are in constant demand, regardless of economic conditions. The demand for products in these sectors is relatively inelastic, meaning that consumers continue to purchase these items even when their income declines. For example, during the 2020 recession, companies like procter & gamble and johnson & johnson, which produce essential consumer goods, maintained relatively stable stock prices and continued to pay dividends. This stability is because people still need basic necessities like soap, toothpaste, and toilet paper, which are difficult to cut out of budgets.



Utilities provide essential services such as electricity, gas, and water, which are necessary for daily life. These services are not discretionary and must be paid for regardless of economic conditions. For instance, companies like exelon, consolidated edison, and American Water Works saw gains during the market selloff in April 2025, as investors sought safer places to put their money. These companies are considered more resilient in shaky economies because their services are difficult to cut from budgets.

Healthcare is another sector that is generally renowned for faring better during downturns. The reasoning behind this is clear: you need healthcare to live, and therefore are much less likely to skimp on it even when your income declines. For example, during the first quarter of 2020, Regeneron Pharmaceuticals and Gilead Sciences saw significant gains because of the hype surrounding treatments they were developing to combat the COVID-19 virus. Healthcare companies with low debt-to-equity ratios and a strong cash flow are particularly resilient during economic downturns.

Consumer staples include food, beverages, and other basic necessities that people continue to purchase even during economic hardships. For example, during the market selloff in April 2025, companies like Conagra, General Mills, and Hormel Foods saw gains because food is among the many expenses that can’t be completely cut out of a budget and will likely be grudgingly absorbed by people. Similarly, personal care and household necessities are difficult to cut out of budgets, making companies like Church & Dwight, Procter & Gamble, and Clorox more resilient during economic uncertainty.

The key differences in market performance between cyclical and defensive stocks during periods of economic uncertainty are stark. Cyclical stocks, which are typically found in sectors like technology, consumer discretionary, and industrials, tend to be more sensitive to economic cycles. These stocks often experience significant volatility and can decline sharply during economic downturns. For instance, in 2024, cyclical stocks led the market, but this trend was reaccelerated post-election on hopes of tax cuts, deregulation, and onshoring. However, during times of uncertainty, such as the global selloff triggered by President Donald Trump's tariffs in April 2025, cyclical stocks like Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla faced substantial losses. Apple, for example, saw an 8% drop in share price, while Nvidia and Tesla experienced 6% and 4% declines, respectively. This volatility is due to the heightened worries of a global recession, particularly in the United States, which led to a significant selloff across markets.

In contrast, defensive stocks, which are found in sectors like utilities, healthcare, and consumer staples, tend to be more resilient during economic downturns. These stocks provide essential products or services, such as electricity, medication, and food, which have relatively constant demand. For example, during the 2008 financial crisis, companies like Procter & Gamble and Johnson & Johnson maintained relatively stable stock prices and continued to pay dividends. Similarly, in April 2025, companies that focus on food, health care, and other necessities gained ground despite a slump in the broader stock market. Companies like General Mills, Hormel Foods, and Procter & Gamble saw gains of 3.5%, 4%, and 1.4%, respectively. This resilience is due to the inelastic demand for these products, which helps these companies maintain steady performance even during economic downturns.

Investors can leverage these differences by incorporating defensive stocks into their portfolios to reduce risk exposure. By adding defensive stocks, investors can balance out riskier growth stocks, helping to protect the portfolio from severe losses during market downturns. Additionally, many defensive stocks offer attractive dividend yields, providing a steady income stream. This can be particularly valuable for retirees or conservative investors seeking cash flow. For example, during the 2008 financial crisis, investors who held defensive stocks like Procter & Gamble and Johnson & Johnson experienced less severe losses and benefited from ongoing dividend payments.

However, it's important to note that investing in defensive stocks comes with its own set of risks. One significant risk is limited growth potential. Because these companies focus on consistent performance, they may not offer the same explosive growth opportunities as more volatile stocks. To mitigate this risk, investors should ensure their portfolio remains balanced, combining defensive stocks with growth-oriented investments. Additionally, it's crucial to conduct thorough research on any stock purchase, assessing the company’s financial health, market position, and future growth prospects.

In conclusion, the recent market selloff has highlighted the importance of defensive stocks in providing stability and resilience during times of economic uncertainty. By understanding the key differences in market performance between cyclical and defensive stocks, investors can build more resilient portfolios that are better equipped to weather market volatility. Whether it's utilities, healthcare, or consumer staples, these sectors offer essential products and services that are in constant demand, making them attractive to investors seeking stability and consistent returns.

Ask Aime: Which sectors are most resilient during economic downturns?