Best Defensive Stocks and ETFs to Protect Your Portfolio

Published October 31, 2024 – Paul Beland.CFA By Paul Beland, Global Head of Research – Wealth Management

Key Takeaways

5 Key Takeaways for the best defensive stocks and ETFs to protect your portfolio:

Defensive sectors like Consumer Staples and Health Care offer stability during potential economic slowdowns, making them essential for longer-term portfolio protection.
Top stock picks include Walmart (WMT), Amgen (AMGN), and McKesson (MCK), known for their growth outlooks and defensive characteristics.
Defensive ETFs such as Vanguard Consumer Staples (VDC) and VanEck Pharmaceutical (PPH) provide diversified exposure to stable industries.
The U.S. economy is showing early signs of rising risks. Job growth is slowing, and consumer debt is increasing. In a market environment with stretched valuations, any material deviation in growth expectations could create a rotation out of more cyclical sectors. This highlights the need for a defensive strategy.
CFRA’s research tools offer actionable insights, combining macro analysis, forensic accounting, and sector performance data to help advisors navigate uncertain markets.

Introduction

In today’s unpredictable economic climate, financial advisors are increasingly seeking ways to protect their clients’ portfolios from downturns and market volatility. One effective strategy is to focus on defensive stocks and ETFs. Look for those in sectors like Consumer Staples and Health Care. These sectors usually do well during economic slowdowns. Understanding how to position clients in these areas can help mitigate risk while still providing solid returns.

At CFRA Research, we focus on macroeconomic research, forensic accounting, and sector analysis. We provide wealth managers, institutional investors, and financial advisors with useful insights into effective defensive strategies. In this blog, we will give an overview of our latest sector outlook. We will highlight the top defensive stocks and ETFs to consider. We will also show how our investment research solutions can help you understand today’s market better.

Why Defensive Stocks and ETFs Matter

In portfolio management, defensive stocks are those that typically offer stability and relatively lower volatility during economic downturns. These stocks are often in sectors like Consumer Staples and Health Care. Companies in these sectors offer essential goods and services. These goods and services stay in demand, no matter the economic conditions.

Defensive ETFs group these types of stocks into a diverse package. This gives investors access to many defensive industries with just one investment. For advisors, placing clients in these stocks and ETFs can lower the risk of big losses during market downturns or recessions.

CFRA’s Latest Sector Outlook

CFRA recently completed its quarterly review of Sector Outlooks, and we recommend overweight positions in the Communication Services, Information Technology, and Financials sectors. These sectors are well-positioned to outperform in our base case of a soft-landing economy over the next year. We are watching changes in consumer debt and the job market closely. Rising economic risks could affect overall market performance.

These sectors have growth potential, but advisors should also consider defensive sectors. Consumer Staples and Health Care can provide protection during a market correction or economic slowdown.

CFRA’s sector outlooks, crafted through collaboration among 90 analysts, draw from diverse research disciplines. Their insights inform equity STARS ratings and a model portfolio.

Download CFRA’s The Importance of Sector Outlooks Case Study

Key Defensive Sectors and Top Picks

Consumer Staples

CFRA’s top picks in the Consumer Staples sector include but are not limited to:

Walmart Inc. (WMT)
BJ’s Wholesale Club Holdings, Inc. (BJ)
Vanguard Consumer Staples ETF (VDC)

These companies sell important consumer goods like groceries, household items, and personal care products. These items are always in demand, no matter the economy.

Health Care

In the Health Care sector, our top defensive picks include but are not limited to:

McKesson Corporation (MCK)
Amgen Inc. (AMGN)
Eli Lilly and Company (LLY)

These companies operate in areas like pharmaceuticals and health care distribution, which provide necessary medical products and services regardless of economic conditions.

CFRA recommends these top defensive picks to help financial advisors. They provide research-backed insights into stocks and ETFs. These investments can offer stability in uncertain markets.

Economic Outlook: Preparing for Rising Risks

While the U.S. economy remains solid, there are emerging cracks that financial advisors need to be aware of. Consumer spending has remained resilient despite persistent inflation and rising interest rates. More of this spending is now funded by debt. We are starting to see an increase in defaults, especially in auto loans and credit card balances.

Additionally, the U.S. job market, while not in freefall, is showing signs of slowing down. The latest jobs report for September added 254,000 jobs. This is a good number, but it is lower than the strong growth seen earlier this year. This means that a cooling job market might affect consumer confidence and spending. This could lead to a self-reinforcing economic slowdown.

Risk of Earnings Revisions in 2025

In addition to these consumer-driven risks, there are growing concerns about corporate earnings estimates for 2025. Current earnings trends are strong. However, we have seen expectations for Q3 2024 drop. They fell from 8.1% to just 3%. Estimates for S&P 500 earnings growth in 2025 have been lowered to around 14% from 14.6%. There is a risk of more downgrades if the economic outlook gets worse.

Given these potential challenges, it’s more important than ever for financial advisors to consider defensive stocks and ETFs that can withstand an economic slowdown. CFRA’s research helps you find these opportunities early. This way, you can protect your clients’ portfolios.

Market Performance During Recessions

History shows that while market downturns are inevitable, certain sectors tend to hold up better than others. For instance, during past recessions, Consumer Staples and Healthcare have consistently outperformed other sectors.

According to our analysis, during recessions:

Consumer Staples saw an average decline of just 2.4%, while
Health Care fell by 7.3%.

In contrast, more cyclical sectors like Industrials and Consumer Discretionary experienced much steeper declines of 28.9% and 24%, respectively.

This data highlights the importance of moving into defensive sectors before a recession hits. CFRA’s macro research helps you keep up with market changes. It offers timely insights into sector performance and economic trends.

CFRA’s Research Solutions

At CFRA, we offer a comprehensive suite of research tools to help financial advisors make informed decisions. Our unique approach combines fundamental analysis, forensic accounting, technical analysis, and Washington Analysis’ regulatory expertise. This gives you a complete view of the market.

Here’s how CFRA can help you:

Research Depth

Our reports include sector outlooks and specific stock recommendations. They provide insights into defensive strategies. These strategies help protect your clients’ portfolios from losses.

Macro & Micro Analysis

We leverage our macro research capabilities to provide a top-down view of the market, while also offering detailed micro-level stock and ETF analysis. This dual approach ensures you have all the information you need to make data-driven decisions.

Actionable Insights

CFRA’s research is more than just theory. We provide practical recommendations based on careful analysis of the economy. This helps you prepare your clients for long-term success.

Forensic Accounting

With our special forensic accounting scores, you can find companies with warning signs that may risk your clients. This is especially critical when selecting defensive stocks, where financial stability is paramount.

Technical Power Rankings

Our Lowry Research technical power rankings provide extra analysis. They help you find the best times to enter and exit the market. This is based on past performance and momentum indicators.

By utilizing CFRA’s extensive resources, financial advisors can build robust portfolios that minimize risk and maximize returns—even during uncertain economic times.

Learn how CFRA can help protect your clients’ portfolios with defensive stocks and ETFs. Download our macro research on Defensive Sector Strategies. This detailed report explores the sectors and stocks mentioned here in more detail.

By accessing this case study, you’ll gain valuable knowledge on how to position your clients for success in today’s volatile market environment.

Best Defensive Stocks and ETF Strategies from CFRA Research

Download – Defensive Sector Strategies Macro Research

Navigate market volatility with CFRA’s expert macro insights. Our report delivers actionable intelligence—from sector outlooks to defensive strategies—empowering you to make informed investment decisions in uncertain times. Discover the sectors positioned for growth with CFRA’s trusted analysis.

Safeguard Your Clients’ Portfolios with CFRA

In conclusion, the best defensive stocks and ETFs to protect your clients’ portfolios are those found in Consumer Staples and Health Care. As economic risks grow, it’s crucial for financial advisors to focus on sectors that can weather the storm. CFRA’s research offers reliable, data-driven financial research solutions for navigating these challenges, helping you build resilient portfolios that stand the test of time.

Don’t wait for the next market correction. Download our full macro research today to equip yourself with the insights you need to stay ahead of the curve.

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