After a strong rally through to the end of 2025, the S&P/ASX 200 Index (ASX: XJO) is still trading close to its record high. But there are concerns emerging that the index is overheating, with stretched valuations indicating we could face an ASX market crash in 2026.
After big share price rallies, markets are even more vulnerable to sharp corrections if investor confidence starts to waver.
At the same time, news that the Reserve Bank could keep interest rates on hold (or even hike) for longer than planned puts pressure on household spending and company profits.
And all this is on the backdrop of ongoing global uncertainty, such as trade disruptions, increasing tension between the US and China, and the risk of war and conflict between countries or regions.
There's no telling exactly what will happen in 2026. But for investors concerned that an ASX market crash is coming, here are two ASX stocks I'd buy and one I'd sell.
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2 ASX stocks I'd buy in 2026
As one of Australia's largest and most established supermarket businesses, Woolworths Group Ltd (ASX: WOW) is high up on my list.
It's an oligopoly, with supermarket rival Coles Group Ltd (ASX: COL), meaning the two supermarkets have significant power over the Australian grocery sector. The latest Australian Competition and Consumer Commission (ACCC) estimates indicate that Woolworths accounts for approximately 38% of Australia's nationwide supermarket grocery sales.
Both businesses are defensive stocks that will consistently experience relatively stable demand for their products throughout every part of the economic cycle. After all, everyone needs to eat!
If I had to pick between the two, I'd go for Woolworths.
Coles has been a strong performer this year, and it looks like its ongoing growth strategy has paid off. But I'm concerned that its share price has reached a ceiling a few months ago and will continue to correct from its peak. Meanwhile, after a more subdued 2025, Woolworths has much more room for growth throughout the next 12 months.
Another ASX stock I'd buy in 2026 is Transurban Group (ASX: TCL). Again, the stock is defensive, which makes it a great option when facing a potentially unstable market. The company operates toll roads, which have stable traffic volumes, meaning it generates a resilient cash flow regardless of the economic conditions.
1 ASX stock I'd sell ahead of a market crash
Magellan Financial Group Ltd (ASX: MFG) is one I'd sell if a market crash looked imminent. The business and its revenue depend heavily on fund flows, performance fees, and market valuations, which means it is very cyclical.
It's vulnerable in a market crash because its revenue is tightly tied to market sentiment, economic conditions (like rate rises), and investor confidence.
The Australian-based funds manager revealed its group earnings in October. It announced an increase in total assets under management (AUM) to $40.2 billion. But this followed the company's fiscal year results, which showed operating profit was 5% higher, but its net profit after tax was down a huge 31%. I think the tide has already begun turning for this ASX stock.
