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Today, we will analyze the relative strength trend between growth and defensive stocks in the US stock market, which is becoming distinct amid the recent mixed macroeconomic indicators.
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Key Summary
As of March 2026, investor sentiment on the NASDAQ has frozen amid extreme volatility, and there is a high probability of observing signs of capital shifting from growth stocks to defensive stocks.
This is because the US GDP growth rate for the fourth quarter of 2025 was significantly revised downwards, while inflationary pressures remain, complicating the Federal Reserve's (Fed) monetary policy calculus.
Compared to large-cap tech stocks, which have reached extreme valuation burdens, the downside support of defensive sectors such as healthcare and consumer staples may attract market attention.
It is time to check the qualitative defensive power of portfolios in preparation for the risk of the macroeconomic soft landing scenario being compromised.
Current Situation Summary
As of the intraday session on March 20, 2026 (provisional), major indices in the US and Korean markets are at historically high levels, but the perceived sentiment contrasts with this.
Currently, the KOSPI index is at 5,793.42, KOSDAQ at 1,150.08, NASDAQ at 22,090.69, and the USD/KRW exchange rate is at 1,490.20.
However, looking at Daily Stock's own Fear & Greed Index, an anxiety different from the apparent indices is detected.
The KOSPI Fear & Greed Index is currently in the Fear (37) stage, slightly eased from Fear (23.7) a week ago, but significantly worsened compared to Neutral (57.1) a month ago and Neutral (50.2) three months ago.
In particular, the NASDAQ Fear & Greed Index currently remains at an Extreme Fear (17.2) level.
This indicates that investor sentiment has shrunk more severely than Fear (22.5) a week ago, Fear (39.6) a month ago, and Fear (21.6) three months ago.
US macro indicators are also acting as factors heightening market tension.
The recently announced revised US GDP growth rate for the fourth quarter of 2025 was drastically downgraded to 0.7%, and the estimated Q1 2026 growth rate by the Atlanta Fed's GDPNow model also showed a gradual slowdown at 2.3% as of March 19.
On the other hand, the core Personal Consumption Expenditures (PCE) price index for January 2026 recorded 3.1% year-over-year, showing signs of a rebound.
Coupled with oil price volatility caused by geopolitical risks originating in the Middle East, this is a point that could stimulate stagflation concerns.
Financial Analysis
Looking at the recent 11-sector rotation within the S&P 500 market, polarization due to changes in earnings per share (EPS) estimates is being detected.
Until now, the growth stock camp, such as IT and communications, has led overwhelming profit growth fueled by expectations of AI infrastructure investment and productivity improvement.
However, recently, expectations for high growth have become excessive, and it is pointed out that the room for additional earnings surprises may be limited.
Conversely, defensive stocks such as consumer staples, healthcare, and utilities are defending stable cash flows despite concerns about an economic slowdown, such as rising delinquency rates for auto loans and credit cards.
This difference in profit fundamentals is likely to act as a key trigger for capital rotation.
If fatigue from the 'margin revolution' led by growth stocks accumulates, institutional funds could flow into defensive stock sectors with high earnings visibility.
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Valuation
Currently, the forward P/E (Price-to-Earnings ratio) premium of growth stocks against value and defensive stocks is evaluated to be positioned near its historical upper bound.
This was a result of expectations of early interest rate cuts by the Fed being priced in, but as recent CPI and PCE indicators appear sticky, they may face pressure for a valuation reassessment.
| Category | Growth Stocks | Defensive Stocks |
|---|---|---|
| Major Representative Sectors | IT, Communication Services, Consumer Discretionary | Healthcare, Consumer Staples, Utilities |
| Macro Environment Sensitivity | High elasticity to interest rate cut expectations | Excellent defensive power during inflation and economic slowdowns |
| Valuation (P/E) | Positioned near historical highs, valuation burden | Relatively undervalued, securing a margin of safety with dividend attractiveness |
| Recent Market Capital Flow | Concerns over profit-taking due to high-peak burden | Possibility of capital inflow aimed at hedging in a volatile market |
In addition, the valuation gap between the large-cap growth-centric S&P 500 and the small-cap-centric Russell 2000 index is also a major point to watch.
If the high-interest-rate environment prolongs more than expected, defensive stocks offering stable dividend yields could show relative strength over highly-indebted small-cap stocks or overvalued growth stocks.
In a phase where Treasury yields face upward pressure again, the 3-4% dividend yields generated by defensive stocks can serve as a strong safety net.
This is coupled with the tendency of investors to prefer certain cash returns as market volatility increases.
Expert and Institutional Analysis
Major macroeconomic research institutions, such as Pantheon Macroeconomics, warn that if inflation-triggering factors like rising oil prices materialize, the timing of the Fed's interest rate cuts could be pushed back to next year.
This could act as a strong headwind suppressing the valuation multiples in the stock market.
The University of Michigan's Economic Outlook Report also points out a mixed trend in 2026, where consumer prices are not reined in while private employment and consumer sentiment are slowing down.
The analysis indicates that because growth drivers are excessively concentrated in specific high-tech industries like AI, the overall recovery resilience of the real economy could be vulnerable.
Amid this uncertainty, experts advise a portfolio realignment that can limit downside risks rather than making aggressive, unreasonable investments.
In the process of market concentration resolving, increasing the weighting of defensive stocks that generate essential demand regardless of the economic cycle could be a reasonable alternative.
Risk Factors
The worst-case scenario to guard against is a situation where expectations for a soft landing collapse and signals of a full-fledged economic recession light up.
If the service sector employment indicators cool rapidly and the unemployment rate skyrockets, even defensive stocks will not be free from the overall stock market dumping pressure.
Moreover, if geopolitical frictions in the Middle East, such as Iran, intensify and international oil prices exceed $100 per barrel, companies may experience a margin squeeze.
This exists as a possibility to cause stagflation, where prices rise and growth stops, dealing a fatal blow to both value and growth stocks alike.
The possibility of a Fed policy error is also an undeniable risk.
If they overreact to price indicator noise and maintain high interest rates for too long, it could spread into a chain of bankruptcies for marginal companies or credit events within the financial system.
Investment Perspective Summary
Currently, the NASDAQ index flirts with the 22,000 mark, looking spectacular outwardly, but internally, the Fear & Greed Index points to 'Extreme Fear'.
This means that despite the rise of a few leading stocks supporting the index, the majority of market participants are trembling with anxiety over a potential peak collapse.
In the short term, until macro indicators stabilize, it is necessary to be wary of one-sided betting on growth stocks and focus on enhancing the quality of the portfolio.
A barbell strategy of mixing defensive stocks that are capable of inflation hedging and have proven earnings defense could be a wise approach.
We recommend closely tracking the direction of upcoming key employment indicators and the PCE price index to see how the market color changes.
Frequently Asked Questions
Q1. What specific stocks do defensive stocks refer to?
They refer to companies belonging to industrial groups where steady demand occurs regardless of economic fluctuations.
Representative examples include pharmaceuticals and healthcare, consumer staples such as food and beverages, and the utility sector that supplies electricity and gas.
Q2. Which is currently better between growth stocks and defensive stocks?
It is impossible to conclude that a specific stock is unconditionally better, but growth stocks with elevated valuations carry the risk of increased volatility if interest rate cuts are delayed.
Therefore, in a phase like the present where market fear sentiment has reached an extreme and macro uncertainty is high, the defensive power of defensive stocks can stand out.
Q3. How should stock investments be made in a stagflation situation?
In a situation where prices rise and the economy stagnates, the overall stock market can struggle because the value of cash declines and corporate profits shrink.
During such times, consumer staple companies that possess excellent pricing power and pay high dividends, or infrastructure-related stocks linked to real assets, can sometimes act as alternatives.
Q4. Why is the NASDAQ index high when its Fear & Greed Index is at 'Extreme Fear'?
It is highly likely due to a 'concentration phenomenon' where a few giant tech stocks drive the overall rise of the index following a power-law distribution.
While the index trends upward, many other individual stocks are falling or suffering from volatility, leading to a significantly high perceived fear sentiment among investors.
Q5. How is the Fed's future interest rate cut predicted?
Despite the slowdown in the recently announced Q1 GDP estimate, expectations for an early interest rate cut have retreated significantly as the downward trend in prices has been sluggish.
Unless external variables such as energy price fluctuations due to geopolitical risks are resolved, the possibility of high benchmark interest rates being maintained for the time being is raised.
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