What type of stock investment is generally considered stable during economic downturns?

Defensive stock is considered a stable investment during economic downturns because these companies typically provide essential goods and services that consumers continue to purchase regardless of the economic climate. Industries like utilities, healthcare, and consumer staples often fall under this category. Because their products are deemed necessities, defensive stocks tend to maintain stable earnings and dividends even when the economy is struggling.

In contrast, cyclical stocks are influenced heavily by economic cycles and may perform poorly in downturns, as they rely on consumer spending that often decreases in such times. Growth stocks, on the other hand, are expected to grow earnings at an above-average rate compared to the rest of the market but can be more volatile, particularly during economic instability, as investors may be less willing to invest in potential future profits. Small cap stocks, while they can offer substantial growth opportunities, tend to be more volatile and carry higher risk during economic downturns due to their smaller market size and lower liquidity.