Wisdom of Investing in US Stocks During a Bear Market: Focusing on Defensive Sectors and ETFs

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Are you feeling anxious about your shrinking investment portfolio? Recent market turbulence, with both the S&P 500 and Nasdaq indices declining, has left many investors uneasy. You may be refreshing US stock news every day, with your mood fluctuating accordingly.

Core Idea: In uncertainty, rather than passively enduring losses, it is wiser to proactively adjust strategies. Shifting investment focus to defensive sectors is a smart choice. These sectors have stable demand and usually provide better downside protection during market declines. This article will provide you with a clear action framework to help you stabilize your assets amid turbulence.

Key Points

• In a bear market, investors should adjust strategies and shift to defensive sectors to protect assets.
• Consumer staples, utilities, and healthcare are core defensive sectors with stable demand, providing downside protection.
• Dividend growth ETFs (such as SCHD) can provide continuously growing cash flow and reduce portfolio volatility.
• Using dollar-cost averaging to build positions in batches can smooth market fluctuations and reduce emotional decisions.
• Regularly rebalancing the portfolio and monitoring US stock news such as inflation and employment helps make informed investment adjustments.

First Step in Bear Market Investing: Review and Optimize Holdings

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Before shifting to defensive strategies, you first need to conduct a comprehensive “health check” on your current investment portfolio. This is like reinforcing your house before a storm arrives and is a key step in protecting assets.

Core Logic of Defensive Investing

So, what is the underlying logic of defensive investing? It aims to protect your capital during market turbulence rather than pursuing short-term high returns. The core of this strategy lies in investing in companies that provide essential goods and services. Regardless of whether the economy is booming or in recession, people always need to buy food, use water and electricity, and seek medical care.

Therefore, consumer staples, utilities, and healthcare sectors have natural business resilience. Historical data shows that since 1963, these industries have often outperformed cyclical industries during recessions and bear markets. Their stable earnings and ability to continuously pay dividends make them cornerstones for investors seeking shelter in uncertain times.

Diagnose Existing Portfolio: Reduce High-Risk Exposure

Now, examine your holdings. You need to identify and reduce high-risk assets that perform poorly during economic downturns.

Action Suggestions: Check your investment portfolio, particularly focusing on the following asset types:

• High-Volatility Growth Stocks: Tech companies with overvalued prices, not yet profitable, or heavily reliant on future growth expectations.
• Cyclical Stocks: Such as discretionary consumer goods, industrials, and some financial stocks, whose earnings are closely tied to economic cycles.
• Speculative Assets: Assets lacking solid fundamentals, with prices mainly driven by market sentiment.

Reducing exposure to these assets can effectively lower potential losses in your portfolio if the market falls further. You can consider reallocating funds to lower-volatility asset classes.

Defensive Investing Is Not Zero Risk

You need to clearly recognize that defensive investing is not risk-free. Its main goal is wealth preservation and reducing volatility, not complete immunity to market declines.

A major risk is valuation. When large numbers of investors flock to defensive sectors for safety, these stocks’ prices may be pushed higher, leading to expensive valuations. Additionally, when market sentiment reverses and a bull market returns, defensive sectors usually lag behind growth and cyclical sectors in gains. For example, after the market bottomed and rebounded in March 2020, the tech sector’s gains far exceeded defensive sectors. Therefore, adopting a defensive strategy means you may need to accept lower returns during strong market recoveries.

Core Defensive Sectors and Representative ETFs

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After reviewing and optimizing your existing holdings, the next step is to allocate funds to more defensive assets. We will focus on three core defensive sectors: consumer staples, utilities, and healthcare. These sectors provide you with a solid foundation for stabilizing your portfolio amid market turbulence.

Consumer Staples: Stable Demand Across Cycles

The consumer staples sector is a typical defensive investment choice. Its business resilience comes from stable demand for its products.

• Stable Demand: The industry covers food, beverages, household cleaning products, and personal care items (such as toothpaste). Regardless of whether the economy is booming or in recession, people need to continuously purchase these goods.
• Reliable Advantages: This stable demand makes the consumer staples industry more predictable than cyclical industries like tech or discretionary consumer goods.
• Historical Performance: During bear markets, this sector’s declines are usually much smaller than the broader market. For example, the Consumer Staples Select Sector SPDR Fund (XLP) often experiences milder declines during major market pullbacks, directly reflecting its defensive attributes.

Core ETF Recommendation: Consumer Staples Select Sector SPDR Fund (XLP)

XLP is one of the most mainstream ETFs tracking the consumer staples sector. It provides you with a basket of top US consumer staples companies, allowing convenient investment in the entire industry. The fund’s expense ratio is extremely low, only 0.08%.

Here are XLP’s top 10 holdings; you can see it includes many household brands.

These companies, such as Procter & Gamble, PepsiCo, and Costco, with their strong brands and stable business models, can still achieve steady revenue growth during economic recessions.

Utilities: Stable Cash Flow and Dividends

The utilities sector includes companies providing electricity, natural gas, and water. It is another reliable safe haven in bear markets, with main advantages in highly predictable cash flow and stable dividends.

Utilities companies usually operate in regulated markets. This regulatory framework ensures they can earn stable returns because they are allowed to pass infrastructure investment and operating costs to consumers. This “cost-plus” model protects their profit margins, making them more resilient than other industries in interest rate fluctuations and inflationary environments.

Core ETF Recommendation: Utilities Select Sector SPDR Fund (XLU)

XLU is the flagship ETF for investing in the US utilities sector. It packages major companies in the industry for you and is an effective tool for obtaining stable dividend income. XLU’s expense ratio is also 0.08%, and it offers a considerable dividend yield (as of December 8, 2025, 2.70%).

XLU’s top 10 holdings are mainly large power and energy companies.

Historical data shows that even during the 2020 market crash, although the utilities sector also declined, its volatility was far lower than the overall market, demonstrating excellent downside protection.

Healthcare: Inelastic Essential Demand

Healthcare is the last but equally important defensive sector. Demand for healthcare products and services is “inelastic”, meaning that regardless of economic conditions, sick people need to see doctors, and chronic patients need ongoing medication.

• Aging Population: In the US, the population aged 65 and older is expected to grow from 58 million in 2022 to 82 million by 2050. This long-term trend provides sustained growth momentum for the healthcare industry.
• Government Support: Programs like Medicare and Medicaid provide stable funding sources for healthcare demand, which usually remain stable or even expand during economic recessions.
• Historical Proof: During the 2001 dot-com bubble burst, the S&P 500 fell nearly half, while the healthcare sector only declined 0.75%. During the 2008 financial crisis, this sector’s decline was also much smaller than the market and led the rebound.

Core ETF Recommendation: Health Care Select Sector SPDR Fund (XLV)

XLV is the largest and most liquid ETF for investing in the US healthcare sector. It covers pharmaceuticals, biotechnology, medical equipment, and healthcare services sub-industries. Its expense ratio is also only 0.08%.

XLV’s holdings include global top pharmaceutical and healthcare companies.

Another Defensive Approach: Low-Volatility ETF

In addition to investing in specific defensive sectors, you can also consider low-volatility ETFs, such as iShares MSCI USA Min Vol Factor ETF (USMV).

USMV’s strategy is not simply tracking a sector but using algorithms to select a basket of lowest-volatility stocks across the entire US stock market. As a result, the fund’s holdings naturally tilt toward defensive industries like consumer staples, healthcare, and utilities. Its expense ratio is 0.15%.

USMV Top 10 Holdings (Partial)

Company Name	Asset Percentage
Cisco Systems Inc	1.61%
Johnson & Johnson	1.57%
Chubb Ltd	1.52%
Merck & Co Inc	1.45%

For investors hoping to achieve defensive goals without being limited to specific sectors, USMV provides a good complementary choice.

Advanced Strategy: Dividend Growth ETFs

In addition to allocating to defensive sectors, you can adopt a more advanced strategy to strengthen your portfolio’s defensive capabilities: dividend growth investing. This strategy not only provides downside protection in bear markets but also brings you continuously growing cash flow.

What Is Dividend Growth Investing?

The core of dividend growth investing is finding financially sound companies with the ability and willingness to continuously increase dividend payments. This is fundamentally different from simply pursuing high dividend yields. High yields can sometimes be “value traps,” signaling company challenges. Continuously growing dividends, however, are a strong signal of company health and management confidence.

Dividend Growth vs. High-Yield Investing

Aspect	Dividend Growth Investing	High-Yield Investing
Core Signal	Continuously growing dividends indicate company health	High yield may signal stock price decline or financial challenges
Focus	Sustainability and growth potential of dividends	Current cash flow yield
Company Characteristics	Usually financially sound mature companies	May be companies with stagnant growth or facing difficulties
Long-Term Returns	Dividend income + capital appreciation potential	Mainly reliant on dividends, limited capital appreciation potential

Defensive Attributes of Dividend Growth Companies

Why do dividend growth companies have defensive properties? The answer lies in their business models and financial discipline.

According to Evidence 2, these companies are usually mature industry leaders with strong cash flows. They view dividend payments as a commitment to shareholders, thus exhibiting strong financial discipline. This stable cash flow and profitability allow them to cope calmly during economic recessions, continuing to provide reliable income sources for investors.

Historical data also proves this. During market declines, regular income from dividend growth stocks can effectively buffer losses from price drops.

As shown in the chart above, since 1973, companies continuously increasing dividends have not only achieved higher average returns but also significantly lower volatility (Beta value and standard deviation) compared to non-dividend or dividend-cutting companies.

Selected Dividend Growth ETF Examples (SCHD, DGRO)

For ordinary investors, participating in dividend growth investing through ETFs is the most convenient way.

Core ETF Recommendation: Schwab U.S. Dividend Equity ETF (SCHD)

SCHD is one of the most popular dividend growth ETFs in the market. It tracks the Dow Jones U.S. Dividend 100 Index with extremely strict screening criteria, requiring companies to have paid dividends for at least 10 consecutive years and comprehensively scoring based on dividend yield, growth rate, and financial health. Its expense ratio is only 0.06%.

Here are SCHD’s top 10 holdings; you can see it covers blue-chip stocks across multiple industries:

In addition to SCHD, you can also consider iShares Core Dividend Growth ETF (DGRO). DGRO’s screening criteria are slightly different (requiring at least 5 consecutive years of dividend growth), with more diversified holdings, making it another quality choice.

Practical Strategies for Building a Bear Market Defensive Portfolio

You have learned about core defensive sectors and ETFs, but knowing what to buy is just the first step. How to buy and when to adjust—these execution-level strategies are what determine whether you can ultimately weather the bear market safely. This section provides you with a clear practical framework to turn theory into action.

Assess Risk Tolerance and Goals

Before investing any funds, you must clearly understand yourself. Investing is not a sprint but a marathon. Understanding your risk tolerance is the first step to ensuring you can persist to the finish line.

Action Guide: How to Assess Your Risk Tolerance? This is not simply “how much loss do you feel you can bear.” A scientific assessment should combine multiple dimensions:

• Answer Professional Questionnaires: Many broker platforms provide risk tolerance questionnaires. These scientifically designed questionnaires assess your attitude toward risk and potential losses.
• Review Past Behavior: Reflect on the last major market decline—did you panic sell or stay calm? Your past behavior reveals your true risk preference more than you think.
• Consider Financial Situation: Your age, income stability, family responsibilities, and investment horizon all directly determine how much risk you can bear. Younger people usually have longer recovery time than those nearing retirement.
• Clarify Investment Goals: Is your investment for retirement life in ten years or a down payment for a house next year? The longer the goal, the stronger your ability to withstand short-term fluctuations.

Only after honestly assessing these factors can you set an asset allocation ratio matching your risk preference, such as how to allocate between defensive and growth assets.

Use Dollar-Cost Averaging to Build Positions in Batches

In a bear market, trying to predict the market bottom is nearly impossible. Rather than agonizing over “bottom fishing,” adopt a steadier and more worry-free strategy: Dollar-Cost Averaging.

Dollar-cost averaging is an investment strategy where you divide the total investment amount into portions and invest a fixed amount at fixed time intervals (such as monthly or quarterly). The core advantage of this method is that it smooths the impact of market fluctuations.

Core Advantages of Dollar-Cost Averaging: Discipline and Cost Optimization

• Lower Average Cost: When prices fall, your fixed investment amount buys more shares; when prices rise, it buys fewer. Over the long term, your average holding cost is effectively lowered.
• Reduce Emotional Decisions: Dollar-cost averaging turns investing into a disciplined behavior, helping you overcome human weaknesses of buying high and selling low due to fear and greed.
• Simplify Investment Process: You no longer need to constantly monitor US stock news and guess short-term market directions. You just need to focus on executing your long-term plan.

To better understand, here is a simple example:

In this example, through dollar-cost averaging, your average holding cost is $22.99, lower than the simple average price over four months ($23.75). Historical data also proves the effectiveness of dollar-cost averaging in bear markets. Take the 2008 financial crisis for example; investors who persisted in regular investing not only recovered losses but achieved returns far exceeding those who panicked and exited.

To effectively execute dollar-cost averaging, you need a stable source of USD funds. For investors needing currency exchange and cross-border payments, using financial service platforms like Biyapay can help you conveniently manage funds, ensuring timely monthly transfers of needed USD to your investment account.

Regular Rebalancing and Monitoring US Stock News

After building a defensive portfolio and starting DCA, the work is not over. The market is dynamically changing, and your portfolio needs regular “check-ups” and “maintenance”—this process is portfolio rebalancing.

The purpose of rebalancing is to return your asset allocation ratio to the initially set target. For example, your target is 70% defensive ETFs and 30% growth stocks. After some time of market fluctuations, defensive ETFs may rise to 75% due to outperforming the market. At this point, you need to sell some defensive ETFs and buy growth stocks to restore the 70/30 ratio.

Core Role: Rebalancing is essentially a risk management strategy. It forces you to sell high (outperforming assets) and buy low (underperforming assets), going against human nature but being the secret to long-term investment success.

You can choose different rebalancing strategies based on your habits:

While executing rebalancing, you also need to continuously monitor US stock news, especially key indicators signaling possible economic and market recovery. This helps you judge when to gradually shift investment focus from defense to offense.

Key US Stock News Indicators to Monitor:

• Inflation Data (CPI, PPI): Inflation peaking and falling is an important signal that the Fed may slow rate hikes or even cut rates, usually positive for the market.
• Employment Data (Non-Farm Payrolls, Unemployment Rate): A strong job market means economic resilience, but overheating employment may trigger inflation concerns. You need to watch if employment growth is at a “just right” healthy level.
• Fed Interest Rate Decisions: Every Fed statement and meeting minutes affect market expectations. Pay attention to hints about future rate paths.
• GDP Growth Rate: Two consecutive quarters of negative growth are usually defined as a technical recession. When GDP data turns from negative to positive, it is a clear signal of economic recovery.
• Consumer Confidence Index: Rising consumer confidence signals possible future increases in consumer spending, thereby driving corporate profits and economic growth.

By regularly analyzing these important US stock news indicators, you can make more evidence-based portfolio adjustments rather than relying solely on feeling.

The core wisdom for navigating a bear market lies in proactive adjustment. By reviewing holdings, allocating funds to defensive sectors like consumer staples, utilities, and healthcare, and combining dividend growth ETFs, you can build a solid protective layer for your assets.

Defensive investing’s key is not predicting the market bottom. Historical data shows that attempting precise timing often backfires. Your goal is to build a portfolio that can withstand storms. Please maintain discipline, use strategies like dollar-cost averaging, and navigate the bear market with calm and rational attitude, preparing for future recovery.

FAQ

When the Market Recovers, Should I Sell Defensive ETFs?

You do not need to sell all at once. When the economy shows clear recovery signals, you can gradually reduce defensive holdings. At the same time, you can reallocate funds to growth assets to capture market upside opportunities.

How Much Proportion of Funds Should I Invest in Defensive Sectors?

There is no standard answer to this question. Your asset allocation ratio depends on your risk tolerance and investment goals. You can use professional questionnaires on broker platforms for assessment to determine a suitable allocation plan.

Besides Defensive Stocks, Are Bonds a Good Choice?

Yes, bonds are classic defensive assets. They have low correlation with stocks and can effectively diversify risks. You can consider allocating to short-term US Treasury ETFs (such as SHY), which provide stable safe havens in bear markets.

If the Bear Market Has Already Lasted Some Time, Is It Too Late to Start Defensive Investing Now?

It is never too late. The core goal of defensive investing is capital protection, not predicting the market bottom. When market prospects are unclear, shifting to steadier assets is always a wise strategy to reduce portfolio risk.