Wall Street has been in a wavering condition lately as U.S. economic data heightened investor fears of a slowing economy and persistent inflation. This prompted a shift toward safer assets. As traders braced for potential weekend headlines from the Trump administration, which has been active in proposing tariffs and other market-moving policies since taking office a month ago, selling pressure intensified.

Economic Data Raises Alarm

Several economic indicators fueled investor anxiety:

• Consumer Sentiment Drop: The University of Michigan consumer sentiment index fell to 64.7 in February — a nearly 10% decline — as consumers voiced inflation concerns, particularly due to possible new tariffs. The five-year inflation outlook climbed to 3.5%, the highest since 1995.
• Weak Housing Market: U.S. existing home sales dropped more than expected to 4.08 million units in January.
• Services Sector Contraction: The U.S. services purchasing managers’ index (PMI) dipped into contraction territory for February, per S&P Global data.

U.S. yield curve inverted

On Wednesday, the 10-year Treasury yield dropped below the 3-month note, creating an “inverted yield curve.” This phenomenon is widely regarded as a recession predictor. The New York Fed finds it so reliable that it provides monthly updates on the relationship, including the probability of a recession within the next 12 months.

Time for Defensive ETFs?

Investors often rotate into defensive sectors like consumer staples, utilities and healthcare when economic growth concerns arise (read: 4 Safe ETFs to Play as Tariff Tensions Heat Up).

Consumer Staples – Consumer Staples Select Sector SPDR ETF (XLP Quick QuoteXLP - Free Report)

During periods of economic uncertainty, market volatility, or inflationary pressures, the consumer staples sector is often considered a safe investment. The sector sells essential goods with steady demand. Unlike discretionary sectors, where spending fluctuates with economic cycles, consumer staples tend to have predictable revenues and earnings. Many consumer staples companies have a long history of paying consistent and growing dividends.

Utilities – Utilities Select Sector SPDR ETF (XLU Quick QuoteXLU - Free Report)

The utility stocks also get a safe-haven tag. Utilities provide essential services such as electricity, water, and natural gas, which people and businesses rely on regardless of economic conditions. This makes the sector non-cyclical, meaning demand remains stable even during recessions. Utilities can often pass increased costs to consumers through regulated rate adjustments. Moreover, the latest AI boom has brightened the demand for utilities even more as this sector satisfies the AI industry’s energy needs.

Healthcare – Health Care Select Sector SPDR ETF (XLV Quick QuoteXLV - Free Report)

The healthcare sector is another non-cyclical sector that fares better in times of distress. The sector has been performing well lately as the firms in the space are racing toward weight loss drugs, a potential money mint for the sector. The long-term fundamentals for the sector also remain strong given a favorable policy environment and encouraging industry trends. Global trade war fears and geopolitical tensions have raised the appeal for defensive bets, thereby providing a boost to the healthcare stocks.