With growing fears of a market correction, several analysts are warning that the S&P 500 could be heading for a sharp fall — and it might take the FTSE 100 down with it.
Andrew Ross Sorkin of The New York Times and CNBC recently warned that today’s market conditions bear an uncomfortable resemblance to those of 1929 before the Great Depression. He believes it’s not a question of if a major correction happens, but when – and how severe it could be.
Meanwhile, Mad Money host Jim Cramer has expressed concerns about the influence of the volatile cryptocurrency market on the broader S&P 500. Adding to those worries, the International Monetary Fund (IMF) has cautioned about rising vulnerabilities in US markets. It notes overvaluation, an excessive concentration in mega-cap tech stocks, and growing systemic risks as signs that investors might be too complacent.
Could the FTSE 100 follow suit?
The FTSE 100’s heavy exposure to multinational firms means it rarely moves in isolation. Many of its constituents sell products to the US, so if the American market stumbles, the ripple effects could easily cross the Atlantic.
Andrew Bailey, former Governor of the Bank of England (BoE) and now Chair of the Financial Stability Board (FSB), recently warned of a potential US tech bubble forming. He cautioned that an abrupt unwind could destabilise global markets — including the UK’s.
Similarly, macro strategists have highlighted that tight cross-asset linkages between US and UK markets mean a sell-off in the S&P 500 could drag the FTSE 100 lower – especially given its exposure to global demand and financial flows.
Staying defensive
So how can investors prepare for this sort of uncertainty? Many shift funds into traditional safe havens such as precious metals, driving up mining stocks like Serabi Gold. While those assets can perform well in turbulent times, they’re often volatile when sentiment shifts.
Personally, I prefer shares with strong defensive characteristics — companies that continue to generate revenue regardless of the economic climate.
Sectors such as utilities, consumer staples, and healthcare fit that bill nicely. FTSE 100 stalwarts like National Grid, Unilever, and GSK are classic examples. These firms supply essential goods and services that remain in high demand, even during recessions.
A prime example
Take AstraZeneca (LSE: AZN). The pharmaceutical giant proved its resilience during the 2008 financial crisis and even managed to post gains through the Covid years. While recent volatility has kept its share price on edge, the company’s vast size, diversified product range, and strong global presence make it a cornerstone defensive stock.
AstraZeneca invests over £5bn each year in research and development (R&D), giving it one of the most productive pipelines in the sector. Its operations span over 100 countries, spreading risk across regions and currencies.
Admittedly, the firm’s dividend yield of 2.4% isn’t huge, but payouts are steady, well-covered by earnings, and supported by a disciplined balance sheet.
Siding with safety
I’m not saying AstraZeneca is perfect — it’s still at risk from patent expirations, competition from generics, and the unpredictability of new drug development.
But compared with many cyclical businesses that could see revenues collapse during a crash, it certainly exhibits far more resilience.
In times like these, I think it’s worth considering allocating some funds to defensive shares such as AstraZeneca. It’s a popular strategy used by many investors when planning for potential market turbulence.
