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The chances of a stock market crash this year looked like they were fading to near nothing. But a few developments are starting to make some analysts a bit nervous again. Me too.
The US drives much of the world’s investing momentum. And Donald Trump has been rushing headlong into confrontation with… well, just about every trading partner the country has. Despite tariff costs weighing on American consumers, and despite a weakening US jobs outlook, the S&P 500 is on a cyclically adjusted Schiller price-to-earnings (P/E) ratio of nearly 40. That’s a bit of a mouthful, but the 30-year average is under 30. Today it’s unusually high.
At close yesterday (21 January), our FTSE 100 was still above 10,100 points and close to its all-time record of just a few days ago. And UK inflation just rose again, against hopes. Further interest rate relief suddenly looks more distant.
Flight to safety
Gold has been hitting new all-time records almost daily, reaching over $4,800 an ounce. Silver is soaring too. It all looks like a typical flight to safety. And it makes me think a lot of investors are running scared.
Does it all mean a stock market crash is on the cards for 2026? I think the chances we’ll see something like the horror year of 2020 again this year are remote. But the likelihood of a global bear market of some degree looks to me like it’s rising.
My reaction is not what we typically hear from stock market commentators. For selfish reasons, I hope share prices do indeed fall. That’s because I’m still in my long-term net investing phase, and I want to buy more shares. So why wouldn’t I want to snap some up at lower prices?
But what about investors who are drawing down cash for income? Or who plan to do that in the next few years? One thing to consider is moving more and more investments into defensive stocks on modest valuations the closer it gets to retirement day.
Defensive pick?
National Grid (LSE: NG.) is one of my favourite examples. It shocked the market in 2024 by tapping investors for £7bn more cash for network expansion plans. Despite the share price dip in response, it quickly made up the loss. And National Grid shares have gained ground quite nicely since then.
There’s a 4% dividend yield on the cards for the current year, which is better than average. And the company has a long record of annual dividend rises — with a blip in 2025 resulting from issuing extra shares.
At the interim stage this year, the company reiterated its commitment to “a progressive level of total dividend aiming to grow the dividend per share in line with UK CPIH.” That’s the consumer price index, including housing.
I think the main risk right now could stem from trade tensions between the UK and US — where National Grid does a lot of business. But, stock market crash or no crash, I think every investor should consider putting some cash into relatively defensive stocks like this.
