A technical recession usually means an economy has posted two consecutive quarters of negative gross domestic product (GDP) growth. Canada appears to be in that uncomfortable zone. Recent GDP data showed the economy contracting for a second straight quarter, with first-quarter 2026 GDP down 0.1% after a revised 1% decline in the fourth quarter of 2025.
Personally, I do not think investors should overhaul their portfolios every time a macro headline changes. But there are certain types of stocks that tend to be more resilient when the economy weakens. In Canada, we do not have a large healthcare sector on the TSX. But we do have utilities and consumer staples, two classic defensive areas that can help reduce portfolio volatility.
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What makes a stock defensive?
Defensive stocks usually operate in non-cyclical industries where demand is relatively inelastic. Inelastic demand means consumers keep buying the product or service even when the economy slows. They may cut back around the edges, but demand does not collapse.
That is why utilities often hold up better. People still need electricity, water, and transmission infrastructure. Consumer staples can also be resilient because households still buy groceries, pharmacy products, and basic household goods during recessions.
This stability can flow through the fundamentals. If revenue is steadier, margins may fluctuate less. If margins fluctuate less, earnings and cash flow can become more predictable. Over time, that can translate into lower share-price volatility.
Two Canadian blue-chip examples are Loblaw (TSX:L) and Hydro One (TSX:H).
Loblaw operates grocery, pharmacy, and retail businesses, which puts it squarely in the consumer staples category. Yahoo Finance currently lists the stock with a five-year monthly beta of 0.38 and a forward dividend yield of 0.97%.
Hydro One owns electricity transmission and distribution assets in Ontario, making it a regulated utility. Yahoo Finance currently lists Hydro One with a five-year monthly beta of 0.40 and a forward dividend yield of 2.39%.
Do not confuse defensive with risk-free
Loblaw faces risks around grocery competition, regulation, labour costs, and often, stretched valuation. A great business can still become a weak investment if investors pay too much for it.
Hydro One has different risks. It is regulated, which creates stability but also means returns depend partly on regulatory decisions. Higher interest rates can also pressure utilities because they tend to carry significant capital spending needs and debt.
That is why investors should never buy a stock solely because it looks “safe.” A defensive business may deserve a premium, but paying any price removes the margin of safety investors should still demand.
