It’s dicey out there. Market volatility is unusually high, stocks are bouncing around, bond yields are fluctuating. And the oil price is driving much of this volatility.
The market fears that oil prices will remain elevated for longer than just a few weeks, pushing up inflation, making for higher interest rates and slower or indeed no economic growth.
This fear is understandable. Photos of tankers on fire in the Strait of Hormuz – a narrow water passage through which 20% of daily global oil trade and 25% of daily liquified gas flow – suggest that the normalisation of energy trade is some way off. The fate of the Strait is the focus of oil prices, which have topped $100 twice this week – despite the International Energy Agency agreeing to release 400 million barrels of oil from their emergency reserves to meet global demand.
This article isn’t personal advice. Remember, investments rise and fall in value, so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice.
Sentiment and geopolitical shocks fuel market swings
Animal spirits are driving asset pricing – and not for the first time this year.
The extremity of market reaction echoes the artificial intelligence (AI) disruption seen last month, when a series of AI model launches caused dramatic selloffs in software, legal and financial services stocks – regardless of whether those companies themselves had AI capabilities, let alone strong earnings, proprietary data, switching costs and supportive regulatory environments. It was a baby-out-with-the-bath-water trade.
We have no crystal ball, but we think the war is likely to last weeks, not years. Elevated oil prices are transitory, and this will not cause a global financial crisis.
Donald Trump – elected on a mandate to end forever wars, drive down inflation, and who has made lower interest rates a vocal goal of his Presidency – will likely do whatever it takes to conclude the war, even if it means abandoning the objective of regime change and calling victory on other terms. Investors should be aware that volatility will continue however, with further losses expected, until that resolution.
As discussed in last week’s column, the most sensible approach in times of uncertainty is to do absolutely nothing, and sit out the daily fluctuations, staying focused on the long term. But as caveated at the time, this approach is most effective if you have built a diversified portfolio – balanced in line with your risk appetite and investment horizon.
But what if that is not the case?
How do you add resilience to your investments?
Quality is a word well understood in our everyday rhetoric – premium fresh food, cashmere, precision engineering, Christmas chocolates (the purple one is the best, no arguments).
In investing, quality also means something specific. And in times of uncertainty and volatility, quality investments are a welcome addition to an investment portfolio.
Quality bonds are those that are lowest risk. They may not pay the highest rate of interest, but they come with a high credit rating, meaning they have the lowest chance of default, a good attribute if you have concerns about economic growth. They are issued by governments and companies with the lowest chance of default. Gilts, issued by the UK and Treasury Bills, issued by the US government fall into this category.
Quality stocks – one of the themes we identified in our 2026 market outlook – are companies that have characteristics which should do well regardless of economic backdrop. This is typically because they have stable and predictable cashflows and little to no debt. Often this includes companies in sectors such as utilities, consumer staples, healthcare and industrials.
Quality investing has been out of favour in recent years but historically when markets fall these hold up better – a good balance in a portfolio which already holds high-growth tech holdings, or value-biased companies.
Speaking to our equity research team this week, I asked for examples of two quality companies they think would add resilience and diversification.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio. Yields are variable and not guaranteed.
Admiral
Admiral is their preferred pick in the insurance sector, reflecting strong fundamentals including a healthy balance sheet and robust profitability. That’s helped by a competitive business model, where the sharing of underwriting risk with partners allows it to scale without putting pressure on its finances.
The data-driven approach to pricing means it can offer competitive premiums without being exposed to undue risk. Nevertheless, concerns around AI disruption could damage investor sentiment.
Another risk to call out is a challenging backdrop for the core motor insurance division. The markets recently become more optimistic about the group’s prospects, but we think there’s still some upside on the table. Admiral’s well placed to benefit when conditions do improve and recent price rises could be sowing the seeds for some green shoots in 2027. While there can be no guarantee, the forward dividend yield of 6.0% should be able to withstand this year’s headwinds.
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Relx
Relx, one of the team’s Five Shares to Watch for 2026, has a dependable record of revenue growth and margin improvement, underpinned by high recurring revenues. The valuation’s been under pressure of late as investors try to gauge the potential for new AI tools to challenge some of its products. However, the latest results point to a business executing well.
Relx provides mission-critical data analytics to insurers, law firms and academic institutions. Its competitive advantage is built on deep, proprietary datasets and sophisticated tools that are difficult to replicate. Revenue is dominated by digital products, which are also the core drivers of long-term growth.
Cash generation allows for ongoing investment and returns to shareholders. Of course, payouts are never a given. We remain positive on the outlook for earnings growth and think that much of the negative sentiment towards the company has been misplaced. However, the rapid development of AI means that additional doubts may creep in, which could drive further volatility in the shares.
One or more of the equity research team hold shares in RELX.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Yields are variable and not guaranteed.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.
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