With ballooning federal budget deficits here at home, bailout after bailout in the Eurozone and roaring inflation continuing to persist in many of the emerging markets, it's no wonder investors are on edge. These problems, compounded with slowing global economic growth, have caused the markets to steadily trend downward since June. As the immediate-term economic outlook is poor, many investors are in a quandary about what to do. As we enter the "dog days" of summer and more bad news is on the horizon, investors may want to tilt their portfolios toward a defensive posture. (To help you take a defensive position, check out 8 Fund Types To Use In A Recession.)

TUTORIAL: Risk and Diversification

Trouble Brewing
Overall, the news keeps getting worse for the global economy. Greece's inability to pay back its debt has once again made front-page news. As the credit upheaval spreads from Greece, analysts estimate a significant risk of Spain and Italy being "engulfed by the crisis". The PIIGS nations will require constant handholding and will be a major drag on European growth. Funds like the SPDR EURO STOXX 50 (NYSE:FEZ) continue to fall. In the emerging world, food continues to be a major issue. As food prices maintain their upward trend, the potential to unhinge the developing world's strong prospects continues to grow. This doesn't even take into account the potential housing bubbles brewing in places like Hong Kong and China.

In the U.S., the economy is appearing to slow down. June's unemployment rate rose to 9.2% from 9.1%, as hiring crawled to a near standstill last month. This lack of jobs is having a dramatic effect on consumer confidence. For the month of May, the index dropped by 5.2 points, reaching a six-month low. The housing market remains strained, and the threat of a Debt Ceiling default continues to rise every day. Overall, earnings for a variety of companies have fallen in the last quarter due to the slowing economy.

Defense is the Best Offense
With all the headwinds facing the global economy, it's no wonder the major stock indexes have trended downward over the last few weeks. The Vanguard S&P 500 ETF (NYSE:VOO) seems to shudder every time there's more bad news. While a new recession may or may not be in the cards, it could be time for investors to break out the recession handbook. By seeking shelter in those sectors that tend to do well in constrained environments, investors could avoid some of the worst effects of the summer downturn. Here are a few ways to do just that. (To help you recession-proof your portfolio, read 4 Characteristics Of Recession-Proof Companies.)

Consumer Staples
With the return of volatility, investors may want to look toward their pantries and medicine cabinets for stocks. After all, the companies that produce food, toilet paper and soap may not be exciting, but they tend to be very predictable and normally generate positive free cash flows. Their non-cyclical nature makes them perfect additions for a portfolio looking for shelter. The Consumer Staples Select Sector SPDR (NYSE:XLP) is still the most liquid way to gain access to this sector. However, the Vanguard Consumer Staples ETF (NYSE:VDC) may be a better choice, offering more exposure to product producers than retailers. The fund follows 111 different companies including Altria Group (NYSE:MO) and Colgate-Palmolive (NYSE:CL). The ETF yields 2.39%.

Utilities
Like consumer staples, the utility sector offers the right combination of safety and dividends that investors are looking for to get them through the current turmoil. Even in times of duress, people need to heat and cool their homes. They need the water and electricity flowing. Both the iShares Dow Jones U.S. Utilities (NYSE:IDU) and utility-heavy SPDR FTSE/Macquarie Global Infrastructure 100 (NYSE:GII) offer yields in excess of 3.5%.

Healthcare
As one of the few sectors of the U.S. economy that has seen constant growth, the sector may be one of the better choices to play the turmoil. Healthcare is one of the only sectors to see continued jobs growth over the last 10 years. The Health Care Select Sector SPDR (NYSE:XLV) follows some of the largest healthcare names such as Merck (NYSE:MRK) and Baxter (NYSE:BAX).

Bottom Line
With uncertainty beginning to creep back into the markets, investors may want to take a defensive posture. The three sectors of healthcare, consumer staples and utilities make ideal places to hide from the storm. (To help you further in choosing stocks during a recession, check out 4 Tips For Buying Stocks In A Recession.)

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