With geopolitical tensions on the rise, energy prices spiking from trade route disruptions in the Middle East, and food also at risk of becoming far more expensive, fears of a stock market crash are creeping back into investors’ minds.
However, by taking the right steps, investors can not only protect their portfolios but also position them to thrive over the longer term. Here’s how.
Why the stock market might crash
With a new blockade emerging in the Strait of Hormuz as a result of failed peace talks between the US and Iran, the supply chain disruption of key exports from the Middle East is being prolonged.
While most headlines are focused on oil & gas prices, there’s a long list of other crucial commodities impacted by the war. And that list includes fertilisers for food production, petrochemicals for plastics manufacturing, helium for semiconductor manufacturing, and aluminium for industrials.
Together, these supply shocks create a potentially perfect storm of shock-inflation that companies will either have to absorb or pass on to consumers. And neither scenario looks good.
Absorbing costs likely translates into heavily compressed gross margins. But passing costs along to an already weakened consumer could result in plummeting sales volumes.
The result? Shrinking revenue, profits, growth, and margins pave the way for a painful stock market correction, or potentially even a full-blown crash.
Don’t panic
While the global economic landscape is concerning, it’s critical not to panic and start making rash emotional decisions. A stock market crash is by no means guaranteed. And the situation in the Middle East is a very fluid situation.
Instead, investors need to stay disciplined and remain focused on the long term, prudently reviewing their risk tolerance in the process.
For those starting to lose sleep at night, now might be a good time to think about rebalancing and diversifying a portfolio into more defensive sectors.
But for those comfortable with short-term volatility, holding through the storm and looking to buy more when everyone else is panic selling, could go on to earn superb returns a few years from now when the storm eventually blows over, and the stock market recovers.
However, let’s focus on investors who might be feeling nervous right now. Which defensive stocks should they be considering in April 2026?
What the experts are recommending
Institutional analysts have put together a growing list of UK stocks that could be nicely positioned to weather the Middle Eastern storm. And that list includes BAE Systems (LSE:BA.).
Rising NATO defence budgets and the rearmament of Europe serve as powerful long-term tailwinds even when the conflict in the Middle East is resolved. And with a record £83.6bn order backlog that’s still growing, the benefits are already emerging.
It’s important to note that BAE isn’t completely immune. Its defensive solutions require a lot of raw materials like specialist metals such as titanium, aluminium, and rare earths. And with trade routes being disrupted by the war, these constraints have already started causing delays and lengthening manufacturing lead times.
It’s a risk that investors will need to consider carefully. But BAE Systems might be worth considering for investors seeking diversified exposure to the defence sector during these uncertain stock market conditions.
