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Beginnings and Blends: S&P 500 Sector Performance in the New Year S&P Dow Jones Indices

Consumers need electricity, water, heating, and air conditioning, whether the economy is in a recession or not. Defensive stocks play an important role in any well-rounded investment portfolio. These stocks provide stability, consistent returns, and protection against economic downturns. Another characteristic of defensive stocks is their consistent dividend payouts. These stocks often belong to companies that have a long history of distributing dividends to their shareholders, even during challenging economic times.

This stability can help investors feel more confident and comfortable with their investments, even in the face of market turbulence. Finder US is an information service that allows you to compare different products and providers. We do not recommend specific products or providers, however may receive a commission from the providers we promote and feature. If a brand is a referral partner, we’re paid when you click or tap through to, open an account with or provide your contact information to the provider. We then scored and ranked each provider to determine the best brokerage accounts. Even though the consumer staples sector will likely always be around, they face unique challenges today.

Examples of defensive stocks

• That’s because investors generally shunned defensive stocks in favor of a narrow segment of mega-cap growth companies (particularly those with ties to artificial intelligence).
• The Consumer Defensive sector comprises companies whose businesses are less sensitive to the economic cycle.
• Shares of PG have surged 6.4% over the year to close the last trading session at $167.47.
• Street expects KO’s EPS for the fiscal 2024 fourth quarter, which ended in December 2024, to increase 5.5% year-over-year to $0.52.
• Finally, investors should consider industry trends when selecting defensive stocks.
• During a recession or a bear market, however, these types of stocks would typically fall in value, having a knock-on effect on their share price.

Because of the constant requirement of these products, defensive shares tend to remain stable during various phases of business cycles. Ultimately, the sector’s performance in the year ahead may—as with other sectors—depend on the performance of the broader economy. Because it is such a defensive sector, consumer staples has historically tended to shine in times of economic weakness. Despite the market’s current optimistic growth expectations for the broader economy in the year ahead, I remain more measured. If economic growth fails to meet the high expectations bar, defensive sectors like consumer staples could perform better.

Which of these is most important for your financial advisor to have?

It is critically important for policymakers to make sure that all state consumer protections are up to the task of dealing with new challenges. Without Tesla, cyclical sectors such as Commercial Services, Technology Services, and Consumer Durables are all trading below their trailing 12-month average price-to-earnings ratio. Additionally, we see that almost all defensive sectors are trading above their historical P/E ratios despite having had a rough year in 2020.

Rather than solely considering country of domicile, an important way to assess the economic exposure of a company is through the geographic breakdown of its revenues. Looking more closely, we see that those seven outperformers contain a mix of historically defensive and cyclical sectors. To optimise your returns, you can sell half of your investments in both cyclical sectors and invest in household consumables, a non-cyclical sector. Now, you have 25% investment in financial services, 15% in automobiles and 60% in household consumables. As the economy of any country moves in well-known cycles, industries and companies in a sector experience bullish and bearish cycles based on the current economic stage. This has given rise to the sector rotation strategy, where investors buy stocks in undervalued sectors and sell them when the sector is overvalued.

Performance Reports

A steady and certain return helps the investor to survive during hard economic crashes. So, as an investor you can consider engaging a certain percentage of your investment https://www.forex-world.net/ towards defensive stocks which at times acts like a protective shield. Even big companies which have strong and steady cash flows with a fixed dividend rate for many years can be considered as defensive stocks. These big, established companies have a certain capacity to absorb market fluctuation and remain unaffected to market change.

Aritra is a financial journalist dedicated to breaking down complex financial topics into simple, actionable insights. Holding a Master’s degree in Economics, he uses his analytical expertise to help investors uncover unique opportunities for long-term success. CL’s shares have surged 3.6% over the past year, ending the last trading session at $85.50. It also expects gross profit margin expansion to go up slightly on both a dollar basis and as a percent of sales and mid-single-digit earnings-per-share growth. On December 19, 2024, KO announced an agreement to acquire Billson’s, an Australia-based brand of alcohol ready-to-drink products. The acquisition expands KO’s portfolio of cocktail-based products by including the company’s Vodka with Tangle, Vodka with Grape Burst, and Vodka with Portello.

Operating Income: Meaning, Formula & Calculation

A defensive stock provides consistent dividends and stable earnings regardless of the overall state of the stock market. There’s a constant demand for these companies’ products so they tend to be more stable during the various phases of the business cycle. Understanding which sectors have historically outperformed in each phase, a market participant might identify which sectors align with their own economic outlook and change their sector views accordingly. One well-known example of a defensive stock operating in the consumer staples sector is the Procter & Gamble Company (P&G). It is a multinational consumer goods corporation headquartered in Cincinnati, Ohio, United States.

For example, during the Covid-19 pandemic in 2020, Reckitt Benckiser reported its highest ever sales growth of 12%, which was driven by its hygiene and cleaning products. Defensive companies may lag behind other firms during periods of economic expansion due to the stability of demand for their products and services. The surge in demand for discretionary goods during economic booms can sometimes detract from the profits of defensive companies. It is worthwhile to note that while defensive stocks are generally less risky than more cyclical alternatives, they are not entirely immune to market fluctuations.

• Approximately 30% of constituents have raised their dividends for 20 to 24 years, while 39% have done so for 25 to 44 years or longer.
• Certain industries, such as healthcare or utilities, may be more stable and less prone to economic fluctuations.
• I believe this environment may allow consumer staples stocks to perform more favorably versus the broader market in the year ahead.
• Regarding tariffs, most consumer staples products are made in the US, so direct effects of tariffs might be limited.
• Defensive stocks accommodate greed by offering a higher dividend yield than can be made in low-interest-rate environments.
• Examples of telecommunications stocks include AT&T, Verizon Communications, and T-Mobile US.

While these stocks may offer more stability and protection during downturns, they may not Finance derivatives examples experience the same rapid growth as companies in more volatile sectors. Companies in this sector, such as Johnson & Johnson, Pfizer, and Merck, often exhibit defensive qualities due to their steady revenue streams and essential products or services. Examples of defensive stocks in this sector include well-established brands like Procter & Gamble, Coca-Cola, and Colgate-Palmolive.

How to trade on defensive stocks

What’s the potential impact of tariffs on U.S. equities across sectors and industries? S&P DJI’s Benedek Vörös takes a quick look at the S&P Revenue Exposure Indices and the importance of granular, industry level analysis in this installment of The Market lexatrade review Measure. Looking across the U.S. capitalization spectrum, Exhibit 1 shows that The 500™ makes up more than 80% of the revenues across S&P Composite 1500® companies.