Stocks · Investing Glossary
What Is Defensive Stock?
A stock that tends to hold up well during economic downturns, regardless of the business cycle.
The Full Definition
Defensive stocks belong to industries that provide goods and services people need regardless of economic conditions — utilities, healthcare, and consumer staples like food and household products. Demand for electricity, prescription drugs, and groceries doesn't collapse in a recession the way demand for new cars or vacations does. Defensive stocks typically underperform in strong bull markets but fall less during downturns, making them a common holding for investors prioritizing stability over maximum growth.
Real-World Example
During the 2022 market decline, the S&P 500 fell about 18%, but consumer staples and utilities — full of defensive stocks like Procter & Gamble and Duke Energy — declined far less, cushioning diversified portfolios against the broader drop.
Related Terms
- Blue Chip StockShares of a large, financially stable, well-established company with a long track record.
- Large-Cap StockA company with a market capitalization typically above $10 billion.
- Sector RotationThe movement of investment capital from one industry sector to another as the economic cycle changes.
- VolatilityThe degree of price fluctuation in an asset over time.