As fears of a U.S. recession grow as the Federal Reserve prepares to fight inflation, many investors in the stock market have already taken a defensive stance and may wonder if such defensive strategies will have room to run, Market Watch writes.

If you check Google (NASDAQ:GOOGL)’s Google search data on recession, the fears around it are steadily growing. It’s understandable: while the nation’s labor market remains robust, inflation, which is at a 4-decade high, is causing consumer sentiment to take a hit.

That said, the Fed is struggling to keep up with inflation and is belatedly looking to tighten its monetary policy, including the possibility of multiple excessive half-percent interest rate increases. It is also contemplating a much faster shrinkage of its balance sheet than it did in 2017-2019.

Despite all the assurances from Fed officials that they will be able to tighten monetary policy and reduce inflation without destroying the economy (economists call it a “soft landing”), the idea has many skeptics, including former U.S. Treasury Secretary Larry Summers, whose early warnings about rising inflation proved prophetic.

He said that no “soft landing” is out of the question, as recession is now the most likely outcome for the US economy.

That this is the most likely scenario is also evidenced by the fact that the yield on 2-year Treasuries, 2.493%, briefly traded above the 10-year Treasury yield of 2.866% earlier this month. A longer inversion of the yield curve is considered a reliable indicator of a recession.

But analysts emphasize that the yield curve is not an indicator for stocks because the period between the start of a recession and the peak of a market rally can last a year or more.

The stock market, meanwhile, fell last week as 10-year Treasury yields rose to the highest level since December 2018 and big banks got off to a mixed start to the reporting season.

Note that the Dow Jones Industrial Average fell 0.8%, the S&P 500 SPX lost 2.1% and the Nasdaq Composite, heavily weighted toward interest-rate-sensitive technology and other growth stocks, fell 2.6%.

While only time will tell if a recession is coming, individual stock market sectors that grow best when economic uncertainty increases have already significantly outperformed the broader market.

“During periods of macro uncertainty, some companies and industries perform better simply because they have less risky businesses than the average S&P-listed company,” said Nicholas Colas, co-founder of DataTrek Research.

That this is the case is evidenced by the numbers: the large-cap utilities, consumer staples and health care sectors, often called the major defensive sectors, have outperformed the S&P 500 this year and over the past 12 months.

So, while the S&P 500 is down 7.8% YTD through last Thursday, the utilities sector is up 6.3%, consumer staples manufacturing is up 2.5%, and health care is up 1.7%.

In fact, the outperformance of these 3 sectors has been even stronger in past periods of macroeconomic uncertainty, with all 3 outperforming the S&P 500 by 15-20 percentage points.