Stock market crash? It could be here soon

The delta variant, labour shortages, and market highs are all concerns for me. Here’s why I’m buying more defensive stocks for my portfolio.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

I’ve recently become worried about a stock market crash. In the past, I’ve prioritised assessing a company’s internal risks over external factors. As society has reopened, I’ve identified multiple issues facing companies worldwide that could cause the next crash.

My own investment strategy usually means that 10% of my holdings are high risk. While I’m still going to keep my current positions, going forward, I’ll invest more in defensive stocks. Here’s why.

The delta variant and a stock market crash

In the US, 83% of new cases are due to the delta variant, up from just 50% two weeks ago. Between 2 August and 16 August, cases grew from 85,000 to 142,000 per day. In six states, less than 10% of ICU beds are available, and they’re also struggling with oxygen scarcity. And there were 1,300 daily deaths this week, the most since March.

As schools reopen, I expect the US healthcare system to come under increasing strain. If there’s further economic restrictions, markets could experience a shock similar to that of March 2019. Of course, some stocks like vaccine makers Pfizer and Moderna could do well. Lockdown winners Zoom and Peloton could also see a resurgence.

China’s new stock exchange

There’s a new exchange opening in Beijing. As the capital city of China, this comes with political connotations. The Chinese government has signalled that it intends to crack down on Chinese stocks listed in the US, with many technology stocks recently coming under increased regulatory pressure. BYD was just forced to suspend plans to sell shares in its semiconductor making unit.

And the global chip shortage is causing serious damage to car manufacturing. General Motors has halted output at most of its North American plants for two weeks. Ford and Toyota have also cut production. US-based Intel, the world’s largest chip manufacturer, could see a share price jump over the next year if it’s able to increase production.

Labour shortages

The UK’s CBI believes the labour shortage could last for at least two years. There’s shortages in many sectors, including fruit pickers, meat processers, livestock and factory workers, carpenters, chefs, and cleaners. It’s so severe, there’s a plan to use prisoners to get production back up. 

Some branches of McDonalds in the US are hiring 14-year-olds. Many UK restaurants are now only open part-time for lack of staff. And Amazon is offering £50 bonuses to employees, simply for being on time. 

A key concern is the shortage of HGV drivers. There’s now 100,000 fewer than the 600,000 working pre-pandemic. Ikea is the latest company to blame this shortage for supply issues. And every day, another company reports fresh problems. Wages could rise to attract labour. Inflation would rise, and with it the possibility of interest rate increases.  

Market highs, and a stock market crash

In 2007, the FTSE 100 closed at 6,547. By the end of 2008, it had fallen to 4,434, its biggest annual decline ever. The index is currently at 7,073 points.

Meanwhile, house prices in the UK are 30% higher than they were prior to the crash. Since 2009, there’s been £895bn of quantitative easing, and interest rates have also been held under 1%. Assets have a long way to fall.

With a million people coming off furlough next month, there could a be an employment reckoning. All these pressures worry me. I think the stock market crash could be coming soon.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charles Archer owns shares of Amazon. The Motley Fool UK owns shares of and has recommended Amazon, Peloton Interactive, and Zoom Video Communications. The Motley Fool UK has recommended Intel and Moderna Inc. and has recommended the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $57.50 calls on Intel, short January 2022 $1,940 calls on Amazon, and short January 2023 $57.50 puts on Intel. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

CEO Mark Zuckerberg at F8 2019 event
Investing Articles

Meta’s putting ads in WhatsApp! Should I buy the stock for my ISA?

This writer can see a handful of excellent reasons to consider adding Meta Platforms (NASDAQ:META) stock to his portfolio today.

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

2 top UK stocks I still wouldn’t touch with a barge pole

Harvey Jones has his barge pole out and is using it to keep these risky UK stocks away from his…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Growth Shares

The Rolls-Royce share price could hit £10 if these 2 things happen

Jon Smith points out two key factors that will likely dictate if the Rolls-Royce share price can continue to push…

Read more »

Investing Articles

Will the stock market crash as war fears grow?

Harvey Jones says hanging around for a stock market crash is no way to pick FTSE 100 shares. What matters…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing Articles

Here’s one of the FTSE 250’s greatest bargain shares to consider!

This FTSE 250 share's risen 10% since the start of the year. Royston Wild gives the lowdown on why this…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

Should I sell Legal & General Group and buy even more Phoenix shares instead?

Harvey Jones is thrilled he bought Phoenix shares as the FTSE 100 insurer has done better than he hoped. He…

Read more »

Photo of a man going through financial problems
Investing Articles

This FTSE 250 stock has a stunning 10.8% yield! Time to consider buying?

Harvey Jones is dazzled by the amount of income on offer from this FTSE 250 stock, but not too dazzled…

Read more »

Young female hand showing five fingers.
Investing Articles

£10,000 invested in these 5 FTSE 100 shares in June 2020 would now be worth…

Our writer considers the best-performing shares on the FTSE 100 since the summer of 2020, and takes a closer look…

Read more »