The U.S. stock market in 2024 has already experienced a wave of hype around AI themes, with most individual stocks trading at historically high P/E ratios. Coupled with the Federal Reserve's imminent rate cuts and escalating geopolitical risks, market volatility is expanding. In such an environment, understanding how to allocate defensive assets has become an essential skill for investors.
Why is now the time to position in defensive stocks?
First, it is important to understand a key market logic: defensive stocks are not always the preferred choice. Although these companies tend to have stable profits, during the economic cycle's upturn, their gains often lag behind the broader market. From an opportunity cost perspective, holding defensive stocks long-term is equivalent to missing out on the gains of the market rally.
However, the situation changes when the following signals appear: first, the economic cycle is about to enter a downturn; second, there is a significant shift in central bank policies. Taking 2022 as an example, European and American central banks took aggressive measures to combat inflation.