The stock market’s red-hot streak is cooling off. After surging more than 20% in both 2023 and 2024, the S&P 500 has lost momentum, and investors are taking notice. The Nasdaq Composite has officially entered a correction, and the S&P 500 is down nearly 6% year to date. But while tech stocks stumble, healthcare, utilities, and consumer staples are quietly climbing.
Investors Seek Safety as Market Wobbles
Uncertainty is rattling Wall Street. The Nasdaq’s correction signals a shift in sentiment, and traders are bracing for more volatility. The S&P 500’s 5.9% decline in 2025 so far has investors looking for safer ground.
Sectors known for stability—healthcare, utilities, and consumer staples—are posting gains. These industries tend to be less affected by economic cycles, making them attractive during market downturns. Defensive stocks, as they’re called, provide essential services that people need no matter how the economy is performing.
Some investors are rotating out of high-growth stocks and into these reliable sectors. The numbers tell the story:
- The Vanguard Health Care ETF (VHT) is up 4.5% year to date.
- The Vanguard Utilities ETF (VPU) offers a 2.9% dividend yield with a price-to-earnings (P/E) ratio of just 20.2.
- The Vanguard Consumer Staples ETF (VDC) has a solid 2.1% yield and a P/E ratio of 24.8.
These funds are attracting attention as investors seek shelter from market swings.
Healthcare Stocks Hold Steady Amid Market Uncertainty
Healthcare has been one of the standout sectors of 2025. Unlike consumer-driven industries, healthcare spending remains consistent. People need medical treatments and prescriptions, regardless of economic conditions.
The Vanguard Health Care ETF (VHT) has gained 4.5% this year. But there’s more to the story. The sector was beaten down in late 2024 after Eli Lilly’s stock price pulled back and UnitedHealth Group saw a steep 17% decline in December.
Eli Lilly now carries significant weight in healthcare ETFs. With a market cap of $719 billion, it makes up 10.5% of VHT’s holdings. Its dominance in the weight-loss drug market has fueled growth, but some analysts question whether such drugs are as recession-proof as other medical products.
Healthcare remains a strong defensive play, but investors should be mindful of its evolving risk profile.
Utilities Offer Stability, but Growth Is Limited
The utility sector is about as safe as it gets. Electricity, water, and gas providers operate in regulated industries, giving them predictable revenue streams.
The Vanguard Utilities ETF (VPU) stands out with a 2.9% dividend yield. More than 61% of its holdings are in electric utilities, which benefit from government-regulated pricing.
However, safety comes at a cost. Utilities tend to have lower growth potential compared to other sectors. They also trade at a discount to the S&P 500 because their earnings growth is slow and steady. Still, for income-focused investors, the sector’s dividends are appealing.
Consumer Staples Remain a Go-To During Economic Slowdowns
Grocery stores, beverage companies, and household product makers don’t experience the same economic booms and busts as other industries. That’s why consumer staples are considered a smart hedge against volatility.
The Vanguard Consumer Staples ETF (VDC) includes major players like Costco, Walmart, Procter & Gamble, Coca-Cola, and PepsiCo. These companies dominate their industries and have strong pricing power.
During recessions, spending often shifts from restaurants to grocery stores. That’s good news for big-box retailers and food manufacturers. Even inflation hasn’t shaken this sector, as companies have successfully passed higher costs onto consumers.
One thing to keep an eye on: Costco and Walmart account for over 25% of VDC’s holdings. Both stocks hit all-time highs in 2024 but have pulled back recently. If these giants struggle, the entire ETF could feel the impact.
A Defensive Approach to Portfolio Management
Adding defensive stocks to a portfolio can help smooth out volatility. While the broader market has been struggling, healthcare, utilities, and consumer staples have provided stability. These sectors don’t always deliver high-flying returns, but they do offer steady performance when uncertainty rises.
Investors should consider the trade-offs. Defensive sectors tend to be less volatile but also have lower growth potential. On the other hand, heavily weighting a portfolio toward high-growth tech stocks can lead to wild swings. A balanced approach may be the best way forward.
For now, defensive sectors are proving their worth. Whether this trend continues depends on how the broader market evolves in the coming months.
