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“The next stock market crash will happen in 2019”

Photo: Davide D'Amico. Arrow overlaid. Licence: https://creativecommons.org/licenses/by-sa/2.0/

This week’s news that Mark Carney will leave his post as Governor of The Bank of England in 2019 means that it’s set to be a very tough year for the stock market. Although originally he had planned to serve until 2018, the additional year now means that Carney will leave the Bank of England in the same year as the UK (most likely) leaves the EU.

Clearly, both of these events are likely to cause investors to become less certain and more fearful about the future direction of the UK economy. However, with them both now due to occur in the same year, many investors will be thinking that 2019 will be the next crash for UK shares.

A long way to go

Certainly, there’s a long way to go until 2019. The UK isn’t guaranteed to leave the EU that year at all, but that’s the timetable set out by the Prime Minister so we have to use that as our guide. Theresa May has said that she intends to invoke Article 50 of the Lisbon Treaty in the first quarter of 2017, which will then kick-off a two-year period of intense negotiations between the UK and the EU.

During that two-year period, it’s likely that the UK’s economic outlook will deteriorate. At least that’s the view of the Bank of England. It believes that unemployment will rise by over 0.5% to 5.6% and that GDP growth will be sluggish in 2017. In turn, these problems could lead to a deterioration in consumer and business confidence that may end up with the UK experiencing a recession.

However, perhaps the most uncertain period will come when the UK actually leaves the EU. This is where the UK will have to stand on its own for the first time in a generation. While leaving the EU may prove to be a roaring success in the long run, even the most die-hard ‘leavers’ are likely to concede that 2019 will be an uncertain year. Add to that the prospect of Mark Carney, who has become increasingly well-regarded following the referendum, leaving the Bank of England and the end result could be a collapse in share prices.

Keep on buying

Of course, we have over two years to go before 2019 and share prices could make strong gains between now and then. Therefore, waiting for a potential crash in 2019 before buying shares doesn’t seem to be a logical move to make. And waiting that long would mean missing out on plenty of bargains in the interim anyway. That’s not the Foolish way.

Even if shares fail to rise in the next two years and fall heavily in 2019, Foolish investors shouldn’t panic. Such a situation presents a buying opportunity, since it’s a chance to acquire high quality companies when they’re trading at discounts to their intrinsic values.

Although paper losses and volatility may make the short term uncomfortable for investors, in the long run a degree of short-term pain can lead to long-term gain. Therefore, a stock market crash in 2019 (or at any other time) could work out very well for patient investors.

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