Why Defensive Stocks Might not Protect You Against a Stock Market Crash

Investors have been on edge lately, and it showed in Tuesday morning's stock market action. Wall Street clawed back some of its early losses, but major indexes remained mixed as market participants tried to balance worries about the pandemic against signs of continuing economic growth. As of 11:30 a.m. EDT today, the Dow Jones Industrial Average (DJINDICES: ^DJI) was up 58 points to 34,897. However, the S&P 500 (SNPINDEX: ^GSPC) had eased lower by 3 points to 4,384, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) fell 89 points to 14,592.

In times of uncertainty, many investors turn to defensive stocks in areas like consumer staples. But with large numbers of shareholders all seeking the same protection against a stock market crash, valuations on defensive stocks can rise to a point at which they're just as vulnerable to disappointments as any other stock.

That's what investors in Clorox (NYSE: CLX) found out today, and it's a good warning for any investors who are overly reliant on the purportedly crash-proof reputation that defensive stocks have.

Source Fool.com