Despite a challenging economic climate, 2025 was a bumper year for the UK stock market. Gaining 21.6%, the FTSE 100 not only had its best year since 2009 but also outperformed the S&P 500.
And then, just as the year ticked over, it briefly clicked above 10,000 points for the first time in history. So all round, a fairly stellar performance from the UK’s leading blue-chip index.
But before you pop open the Champagne, let’s examine three structural risks that threaten to shake things up in 2026.
No time for complacency
Smart investors know that market records are often set just before the music stops. If you’re a middle-aged investor building a retirement portfolio, now’s not the time to be complacent. While the headlines celebrate record highs, storm clouds are gathering over the global economy.
Here’s three reasons why a stock market crash could be on the cards in 2026 — and how to plan a recession-resistant portfolio.
USD weakness. The US dollar suffered its sharpest annual drop in eight years during 2025, and analysts forecast continued weakness through the first half of 2026. This matters for UK investors because the FTSE 100 derives a significant portion of its earnings from overseas, mostly in dollars. When the dollar weakens, those earnings are worth less when converted back into pounds.
Fragmented markets. The era of global stability’s over. Strategists warn that 2026 will be defined by a “fragmented global order“. We are seeing elevated risks of conflict not just in Ukraine and the Middle East, but potentially spreading to Venezuela and intensifying in East Asia.
‘Bubble’ fears. In a recent poll, 33% of institutional investors cited a stock market bubble as the single biggest risk for 2026. With US tech valuations still sky high, any disappointment in earnings could trigger a global sell-off that would inevitably hurt UK markets.
The solution? Be boring
In 2026, my strategy is to shift from ‘growth at any cost’ to ‘quality and reliability’. Essentially, favouring companies that sell the type of essential products that people buy whether the economy’s booming or crashing.
Usually, these are the type of ‘boring’ everyday companies that quietly keep the world turning. Take Tesco (LSE: TSCO), for example.
The high street stalwart commands a massive 28% share of the UK grocery market, giving it immense power to negotiate better prices with suppliers and protecting its margins even if inflation ticks up again.
It has broad market appeal: while its Finest range captures wealthier shoppers, its Aldi-matched pricing retains budget-conscious ones. This ‘all-weather’ appeal makes it far less volatile than the wider stock market.
Dividends are forecast to rise by 4% this fiscal year to 14.2p per share, with a further 10% jump expected next year. While it doesn’t have the highest yield on the market (3.5%), it’s reliable and well-covered by earnings.
The bottom line?
For risk-averse income investors aiming to safeguard their portfolio in 2026, I think defensive income stocks like Tesco are well worth considering. Not that it’s entirely immune to risk – lower-cost rivals like Lidl and Asda are a constant threat to its market share, forcing price cuts and thinning its margins/profits.
That’s why no one stock should be picked alone. Fortunately, the FTSE 100 is jam packed with companies that offer similar defensive qualities and attractive yields.
