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The FTSE 100 leading index of stocks has delivered a 12% gain in the year to date. With fears over valuations on US shares mounting, it’s perhaps no surprise that global investors have been seeking out cheaper UK shares.
Having said that, the FTSE’s rise must also be viewed against a backdrop of high economic and geopolitical uncertainty. Trade tariffs are impacting global growth, inflation is rising, and doubt persists over the scale of interest rate cuts. In this environment, some commentators believe the London stock market is now in danger of crashing.
I have enough experience not to try and predict the near-term direction of the FTSE 100. But I know that it may pay to be prepared for a potential correction. With this in mind, here are three blue-chip shares to consider that might fare better than the broader index in a downturn.
High energy
No matter the state of the economy, we all need electricity to do the daily essentials. This makes energy generators like SSE (LSE:SSE) more stable than most other UK shares during downturns.
There are other reasons why the company could benefit if economic conditions worsen. In such an event, the Bank of England could cut interest rates further to boost growth. This in turn would ease SSE’s large debt burden, and make it more cost effective for it to finance its green energy expansion programme.
That’s not to say SSE isn’t without risk, though. As a major wind farm operator, earnings can suffer when unfavourable weather changes hit energy production. That said, the company’s fleet of gas-fired power plants helps mitigate this threat.
On brand
Fast-moving consumer goods (FCMG) manufacturers can also be great defensive picks. Take Reckitt Benckiser (LSE:RKT), which has a number of weapons in its arsenal.
It sells a wide range of everyday products — homecare, medicines, and personal care goods — that stay in high demand even if consumers feel the pinch. Not only that, but Reckitt’s products, like Gaviscon indigestion reliever, Vanish stain remover, and Durex condoms, enjoy considerable brand power.
Due to their high desirability, the company can effectively raise prices on its so-called Powerbrands to grow earnings even when times are tough. I think it’s another top defensive share to consider, even though competition from smaller local brands poses a rising threat.
Case for the defence
Defence stocks like BAE Systems (LSE:BA.) can also be highly resistant to stock market shocks. Having robust military capabilities is non-negotiable for the company’s main customers, meaning its revenues have historically remained stable across the economic cycle.
In fact, the especially unstable geopolitical landscape today means revenues may hold up better than during previous downturns. Defence intelligence specialist Janes expects global arms spending to actually accelerate 3.6% in 2025 to new record peaks, even as weak economic growth lingers and national debts balloon.
It’s important to note supply chain disruptions threaten BAE’s ability to capitalise on this opportunity. But, on balance, I still believe it’s a top share to think about in today’s uncertain climate.