Volatile oil prices are rattling stock markets around the world as the ongoing Middle East conflict continues to disrupt passage in the Strait of Hormuz.
As of Friday (8 May), Brent crude was hovering above $100 a barrel — roughly 40%-60% higher than February. Global stocks have felt the pinch: the MSCI World index is down around 4% in the first quarter and over 6% just in March.
Markets in Europe, the UK and Asia tend to suffer single-day dips of 2%-3% whenever escalation headlines hit the news. Meanwhile, energy stocks have benefited, with oil companies up 40%-45% and the broader energy sector nearly as strong.
So the market hasn’t crashed yet, but if this volatility keeps eroding confidence, things could get shaky.
What are major institutions saying?
We already know that central banks aren’t rushing to cut rates anymore. The Fed, ECB and Bank of England are holding steady and warning that this energy shock could keep inflation stubborn — and rates higher — for longer than anyone hoped.
A brief look at investor chatter and anyone can see that anxiety is on the rise. Talk revolves around slower growth, sticky prices and even stagflation if oil prices don’t drop. People are even hinting at the possibility of a 1970s-style impact if the energy crisis worsens.
Yet the IMF, along with big insurers, aren’t losing their minds just yet. They believe that while the situation’s serious, it’s contained — for now.
Their worst-case warnings? A drawn-out mess pushing oil toward $150, sparking a global recession and forcing central banks to pick between fighting inflation or propping up growth.
So how should investors prepare for that scenario?
Safeguarding a portfolio
Most forecasts expect some de-escalation, with prices easing over time. For long-term investors with diversified portfolios, it would make sense to tilt toward sectors such as energy, defence, staples and infrastructure.
Keep some cash handy too but don’t try timing every headline or guessing the next twist. One area that many investors neglect is defensive tilting: instead of selling stocks to cut risk, shift to shares that weather storms.
One example for investors to consider is RELX (LSE: REL).
The threat of AI has knocked it down nearly 40% over the past year, but that’s arguably a plus. The fear now looks priced in, unlike a cyclical bet like Rolls-Royce that could drop more.
But AI disruption’s still an undeniable risk. If freely available tools outpace RELX’s ability to innovate, profits could dip and investors could flee.
So could it bounce back?
Personally, I think RELX has strong recovery potential. Here’s why:
- Solid fundamentals: 9.3% annual earnings growth over five years, revenue up 7.1% on average.
- Wide moat remains despite AI threats (could even be an opportunity).
- Analysts’ average 12-month target suggests 39.6% upside.
- The geopolitical situation increases demand for risk analysis tools.
Looking at its other financials, the valuation shows a price only 20 times earnings, which I think is cheap for a company of this quality. Plus, while its yield’s modest at around 2.7%, it’s growing steadily and is supported by buybacks.
At the end of the day, defensive shares like RELX remain one of the most popular methods to reduce risk exposure. And it’s just one of many I’ve covered recently.
