At this time of year, it’s easy to find predictions for how the stock market will perform over the next 12 months. But I’m always wary.
I can’t help but think some of the forecasts are made only to grab the headlines. For example, if I say there’s going to be a crash in 2026 – typically defined as a rapid market drop of more than 20% — and this proves to be accurate, I can then claim to be amazingly insightful and a bit of an expert when it comes to predicting market movements. On the other hand, if a crash doesn’t happen, nobody will ever remember what I forecast.
That’s why I suspect some commentators regularly use this ‘C-word’. After all, eventually they will be proved right. But let’s try and cut through the noise and both ask and answer the question: will there be a stock market crash in 2026?
Getting warmer
Sorry to mislead anyone into thinking I have an answer but to be truthful, I have no idea!
Yet there’s plenty of evidence to suggest that the US market in particular is overheating. The Buffett Indicator – a bit like a market-wide price-to-earnings ratio – is close to its highest-ever level. As the saying goes, if America sneezes, the world will catch a cold. Goodness knows what will happen on this side of the Atlantic if the US gets a bad dose of flu.
And since the FTSE 100 was launched in 1984, there have been four crashes – Black Monday (1987), the bursting of the dotcom bubble (2000), the global financial crisis (2007-2008), and the pandemic (2020). Therefore, crude maths suggests there’s approximately a one in 10 chance of something similar happening in 2026.
Given the uncertainty, I think it’s sensible to, as the famous quote goes: “Expect the best, plan for the worst, and prepare to be surprised.”
That’s why I think it’s a good idea for anyone investing in the stock market to have a diversified portfolio. In other words, a balance of growth stocks and income shares, spread across different sectors operating in a wide variety of markets.
One option
A stock that I hold – J Sainsbury (LSE:SBRY) – has defensive properties that could make it worth considering by those expecting a crash, or at the very least, a market downturn.
Irrespective of the state of the wider economy, people have to eat. When incomes are squeezed, they may swap branded items for cheaper ones. But like most other grocers, Sainsbury’s has its own range of value products to cater for this demand. In fact, these offer the opportunity to earn higher margins as the grocer has greater control over the supply chain and can therefore capture more of the profit.
However, grocery retailing is a tough business. Competition is fierce and margins are tight. In addition, the logistics associated with keeping over 1,400 supermarkets and convenience stores fully stocked can be challenging.
But Sainsbury’s can trace its roots back to 1869. In its 156-year history, it’s survived wars, recessions, and a few pandemics, not to mention some stock market crashes. It’s also established a reputation for paying a generous dividend. And after all this time, it remains Britain’s second-largest grocer. That’s why I think it’s a stock worth considering by investors who are fearing the worst in 2026, but are also hoping for the best.
