What type of stocks typically remains stable during economic declines?

Defensive stocks are characterized by their stability and ability to maintain performance during economic downturns. These stocks belong to companies that provide essential goods and services, such as utilities, consumer staples (like food and household products), and healthcare. Because these products are always in demand, regardless of economic conditions, defensive stocks tend to exhibit less volatility and can provide a buffer in a diverse investment portfolio.

During economic declines, consumers are more likely to prioritize basic needs over discretionary spending, which helps these companies sustain their revenues and profits. This resilience in performance makes defensive stocks a popular choice for investors looking to mitigate risk in challenging economic environments.

In contrast, growth stocks, which are expected to grow at a faster rate than the overall market, often see a decline during recessions as businesses and consumers cut spending. Value stocks might also be less stable during downturns as the underlying factors that make them undervalued might not immediately improve. Cyclical stocks are generally more sensitive to economic cycles, as their performance is closely linked to the economic environment, resulting in volatility during economic declines.