What defines a defensive stock?

A defensive stock is defined as a stock that tends to be less sensitive to economic cycles, meaning it does not vary directly with the broader economic conditions. These stocks typically belong to companies that provide essential products or services, such as utilities, consumer staples, and healthcare. Because of their inherent stability and the consistent demand for their products regardless of the economic climate, defensive stocks are attractive to investors looking for protection against market volatility. This characteristic makes them a safer investment during economic downturns or periods of uncertainty, as they tend to maintain their value better than more cyclically sensitive stocks.

The other characteristics associated with defensive stocks do not align with their definition. For example, stocks that follow market volatility closely typically belong to more cyclical companies, while stocks from technology startups and highly speculative stocks are often associated with greater risk and variability, making them distinct from defensive stocks.