Many stocks experienced record-shattering growth in 2025. However, some people are concerned that a downturn is around the corner, with more than one-quarter of investors feeling pessimistic about the future of the market, according to the most recent weekly survey from the American Association of Individual Investors.
To be clear, nobody knows whether that will happen, and even if we do face a bear market, it may not necessarily result in a severe crash or prolonged recession. The good news is that no matter what may be looming for the market, investors can start preparing their portfolios now.
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Is a stock market crash coming in 2026?
The short answer is that it's impossible to say, even for the experts. That said, some stock market indicators suggest that the market may be overvalued.
For example, the Buffett indicator -- which is the ratio between GDP and the total value of U.S. stocks -- is at record-high levels, which could potentially be a warning sign. This metric was nicknamed after Warren Buffett after the legendary investor used it to correctly predict the onset of the dot-com bubble burst in the early 2000s.
In a 2001 interview with Fortune Magazine, Buffett explained how he predicted the market would turn south. "If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you," he says of the stock market metric. "If the ratio approaches 200% -- as it did in 1999 and a part of 2000 -- you are playing with fire."
As of this writing, the Buffett indicator sits at around 221%. The last time it neared 200% was in late 2021, just before the S&P 500 (^GSPC 1.31%) dipped into a bear market that would last most of the following year.
One move investors can make right now
Again, the market's short-term movements will always be unpredictable to a degree, and no stock market metric is foolproof. A lot has changed in the last 25 years, and the Buffett indicator may not be as accurate today as it was when Buffett made his earlier prediction.
Even if a market downturn is looming, though, perhaps the best thing all investors can do right now is double-check that they're only investing in quality stocks with healthy underlying fundamentals.
Strong companies are far more likely to survive periods of economic instability, and many of them have already experienced multiple bear markets or recessions in just the last couple of decades. Weaker companies, on the other hand, will often struggle to pull through a downturn.
What makes a strong stock?
Stock price alone isn't enough to gauge whether a company is strong or weak. Even unhealthy companies can appear to thrive when the market is soaring, especially if they're in an industry experiencing a lot of hype. Those stocks may seem profitable in the short term, but they often struggle to maintain those returns over several years -- especially if the market is unstable.
A company's foundations are far better predictors of whether it will survive potential volatility. Investing metrics -- like the price-to-earnings (P/E) ratio or price/earnings-to-growth (PEG) ratio, for example -- can help determine whether an organization is financially strong. Less tangible factors, like the strength of a company's competitive advantage or whether its leadership team has a record of making sound decisions in tough times, can also separate leaders from the rest of the pack.
Right now is a better time than ever to ensure that your portfolio is filled with strong stocks. If you find any weak companies or stocks that used to be strong but have lost their edge, now can be a smart time to unload them while prices are still higher.
No one can say whether the market will take a turn for the worse in 2026, but it's smart to prepare anyway. By investing in quality stocks you're prepared to hold for the long term, your portfolio stands a much better chance of surviving whatever the market throws at it.
