How I Made $5000 in the Stock Market

Worried About a Correction? Think Bonds, Not Defensive Stocks.

Nov 14, 2025 02:30:00 -0500 by Teresa Rivas | #Markets

Investors worried about a correction should load up on government debt, according to Piper Sandler. Above is the exterior of the Treasury Department in Washington, D.C. (Brendan Smialowski / AFP / Getty Images)

Key Points

When it comes to protecting a portfolio against a market correction, it may be better to load up on Treasuries–a lot of them–than defensive stocks.

It may seem crazy to move money out of stocks, considering how well equities have done. The S&P 500 is up almost 17% this year and the Nasdaq Composite has gained more than 21%. Even small-caps, which have long struggled, have rallied. The Russell 2000 is up nearly 10%, better than Bitcoin and Ethereum.

It would be understandable if investors chose to stick with what’s working: simply rotating into more traditionally defensive sectors like consumer staples, utilities, and healthcare, rather than fixed income.

That would be a mistake, argues J. Benson Durham, head of global policy and asset allocation at Piper Sandler. He says it’s better not to invest entirely in stocks, even the safer ones. So-called defensive shares don’t offer as much downside protection as Treasury debt, and they are more volatile relative to the broader market.

A “‘balanced’ alternative to the equity-only impulse is to keep holding the benchmark but add U.S. Treasuries, specifically just enough of the risk-free asset to make the beta of the defensive and balanced portfolios precisely equal,” he writes. Beta is a measure of an asset’s volatility relative to an index.

It is true that a basket of those defensive sectors and 10-year Treasuries have more or less the same volatility relatively to the S&P 500 at the moment. And it is also a fact that going with Durham’s balanced portfolio requires a major commitment to Treasury debt.

“The algebra now implies that a balanced portfolio of 68% U.S. Treasuries and 32% to the S&P 500 has the same beta to the market…as the equally weighted ‘defensive’ basket circa [Wednesday’s] close,” he wrote.

Yet the fact that the two strategies offer the same beta now doesn’t mean they always will. In terms of absolute risk, historically, the defensive portfolio almost always has more return volatility than the balanced option, going back to the 1990s, he said.

Moreover, odds are that defensives do even worse than the S&P 500 itself. “Five-year rolling windows suggests that these odds are persistently meaningful and easily exceed those of the beta-equivalent stock-bond mix,” Durham writes.

Then there’s the question of valuation. Although the current rally has been powered by tech, and much has been made of the sky-high price/earnings ratios in that sector, defensives are hardly bargains. As Durham writes, “discounted cash flow models don’t say defensives are cheaper than the overall market or tech stocks particularly. They’re just as stretched.”

If nothing else, this year at least has been kinder to Treasury debt than staples stocks. The iShares 7-10 Year Treasury Bond exchange-traded fund is up more than 4.5% this year. That is a fraction of the gain in the S&P 500, but better than the Consumer Staples Select Sector SPDR ETF’s 1.5% decline in 2025.

Even the Health Care Select Sector SPDR ETF’s 12% gain trails behind the broader market. And the Utilities Select Sector SPDR ETF doesn’t offer the same kind of safety as in the past. Much of its nearly 18% rise this year is tied to enthusiasm about artificial intelligence, the same factor lifting the S&P 500.

Write to Teresa Rivas at teresa.rivas@barrons.com