[Practical Investment] US Stock Market Under Correction... Should We Consider Investing in Defensive Stocks?

Uncertainty Rises Due to Trump Tariffs and Weak Indicators
Defensive Stocks Outperform Cyclicals
Strategies Focus on Consumer Staples and Healthcare

Since the launch of the second Trump administration, stock market volatility has increased. Technology stocks, led by the large U.S. tech group 'Magnificent 7 (M7)', have fallen sharply, but many believe that buying at low prices is 'premature.' Experts recommend increasing the proportion of defensive stocks such as consumer staples and healthcare while paying attention to the uncertainties brought about by U.S. President Donald Trump's tariff and tax cut policies for the time being.

Uncertainty Not Resolved in Short Term... Appeal of Defensive Stocks

According to the financial investment industry on the 26th, all companies in the M7 group except Meta (3%) have recorded negative returns this year. As of the closing price on the 24th, Tesla showed the most prominent decline, falling 27% from the beginning of the year. Nvidia followed with a 12% drop during the same period. Google (-11%), Apple (-9%), Amazon (-8%), and Microsoft (-6%) also fell simultaneously. The Nasdaq Composite Index, which is centered on tech stocks, also dropped 6% compared to the beginning of the year.

This decline is the result of an unfavorable environment in the stock market caused by President Trump's tariff policy. Since the 12th, the Trump administration has imposed a 25% tariff on foreign steel and aluminum, and on the 2nd of next month, reciprocal tariffs are expected to be announced. This worsens corporate earnings and increases economic uncertainty, negatively impacting the stock market. Economic indicators suggesting deteriorating consumer sentiment and slowing employment have been released one after another this year, which is also cited as a cause of high stock market volatility.

The market uncertainty caused by President Trump's policies and weak economic indicators is expected not to be resolved in the short term. The current adjustment period in the U.S. stock market may last longer than expected. Therefore, there is an opinion that the use of 'defensive stocks,' which are less sensitive to the economy, should be increased rather than cyclical stocks. KB Securities researcher Kim Il-hyeok advised, "Since President Trump is expected to focus on producing results in preparation for the midterm elections, the uncertainty related to tariffs may remain high for a long time. It is necessary to lower the proportion of cyclical stocks and increase the proportion of defensive stocks to reduce portfolio volatility."

Looking back at the first Trump administration, the strategy of adjusting the proportion of cyclical and defensive stocks is effective. KB Securities researcher An So-eun analyzed, "At the end of 2017 and early 2018, when expectations for tax cuts were high, the use of cyclical stocks was high, but in the second half of 2018, when economic indicators began to weaken due to the impact of tariff imposition, the use of defensive stocks was high. Currently, as tariff policies are being implemented, it is a period when the use of defensive stocks is high."

Consumer Staples and Healthcare Over IT

Industries attracting attention include consumer staples and healthcare. These sectors are consumed continuously regardless of the economy, so they can relatively withstand stock market instability. According to Bloomberg, since the beginning of this year, consumer discretionary and IT sectors have fallen by 11.9% and 8.9%, respectively, while healthcare and consumer staples have risen by 5.2% and 1.5%, respectively. Hanwha Investment & Securities researcher Lim Hae-in said, "Consumer staples have reasonable valuations and steady earnings per share (EPS) growth. If you are worried about economic slowdown, you should respond with consumer staples until growth stocks rebound."

However, there is also an opinion that a cautious approach is necessary as the prices of defensive stocks have recently increased significantly. KB Securities researcher Park Yoo-an said, "At this point, when concerns about overvaluation of defensive stocks are growing, rather than newly purchasing defensive stocks, selectively approaching sectors with solid profits among growth stocks that have experienced large declines can be an alternative strategy."