Which term describes stocks of companies whose earnings are less affected by the business cycle?

• A. Cyclical
• B. Defensive
• C. Income
• D. Growth

Answer: (B)

Earnings stability through the business cycle is what this term captures. Some companies’ profits rise and fall with how well the economy is doing, but others stay relatively steady because people still need their products or services even during downturns.

Defensive stocks describe those that are less affected by economic swings. They come from sectors like utilities, healthcare, and consumer staples—areas that provide essentials people continue to buy regardless of macro conditions. Because demand for these essentials remains relatively constant, their earnings tend to be more resilient and their dividends steadier when the economy weakens, offering a stabilizing influence in a portfolio.

This contrasts with cyclical stocks, whose profits closely follow economic upswings and downturns, and with growth stocks, which may be more volatile and focused on expanding earnings rather than simply providing stability. So, the best fit for companies whose earnings are less affected by the business cycle is defensive.