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Investors might have expected the Iran war to trigger a stock market crash. It hasn’t happened yet, but still could. How should we prepare?
So far, we’ve had a correction, defined as a fall of 10%. A crash is a drop of 20%, and we’re nowhere near that today. In fact, in the four trading days before Good Friday (3 April), the FTSE 100 climbed 4.56% on hopes the Iran conflict might ease. The Strait of Hormuz remains largely blocked pressure, the oil price is climbing, and there’s talk of energy shortages. Yet markets remain calm.
Investors simply don’t know
Trying to second-guess stock movements is a mug’s game. Markets absolutely refuse to do what analysts say they will. The Motley Fool strategy is simple. Stay invested, think long term and avoid panic. And if markets do plunge, take advantage of the dip to buy top stocks at lower prices, and with higher yields.
When markets fell during the 2020 pandemic, they rebounded at remarkable speed. The same happened after Russia invaded Ukraine in 2022. Donald Trump’s ‘liberation day’ tariffs triggered panic. It didn’t last. Investors who sold out locked in losses and missed the recovery.
I’m not trying to time a crash, but I’m preparing in case we get one. I’ve sold just two stocks in my SIPP. The first is packaging group Smurfit Westrock. I bought this shortly before it shifted its centre of gravity to the US, which I hadn’t bargained on. I also exited cosmetics specialist Warpaint London as I’d found it too unpredictable. That’s left me with cash in my SIPP. If markets fall further, I’ll go shopping for cut-price shares.
I’m targeting value
One stock I hold and that’s also on my watchlist is JD Sports Fashion (LSE: JD). It’s had a torrid run, down 60% in the last three years. The cost-of-living crisis is the main reason. Inflation has driven up costs, as have UK employer’s National Insurance hikes, but shoppers don’t feel as flush as they were.
Middle East volatility has knocked its shares down another 10% in the last month. It looks staggeringly cheap, with a price-to-earnings ratio of 5.7. There’s no guarantee of a quick recovery. If oil prices go higher shoppers will have even less money in their pockets, and less to spend on trainers and sportswear.
Still, there are positives. JD is returning £200m to shareholders through buybacks in its 2026/27 financial year. It remains a strong global brand with a wide store footprint. It’s still making lots of money, forecasting adjusted pre-tax profit of £849m. Sadly, that’s down from £923m last year.
I’m not expecting a sudden turnaround. Sentiment may stay weak for some time. But this is the kind of stock I’ll consider buying if markets crash.
Playing the long game
I’m holding a diversified mix of shares across sectors, combining growth and income. I’d be happy to hold all of them, for five or 10 years, and with luck longer. I’m also looking forward to my dividends being re-invested at today’s lower prices.
At the same time, I’ve got cash ready to invest if opportunities arise. No one knows whether a crash is coming. But I feel I’m as ready as I can be.
