Should I be getting ready for a stock market crash? UK share markets have rocketed over the past year as huge vaccine rollouts raised hopes of a strong and sustained economic recovery. This left a lot of stocks trading on the sort of high valuations that also prompt sharp selling when investor confidence fades. And this has come to pass for lots of British stocks. The FTSE 100 fell back below the critical 7,000-point mark again in recent days amid a raft of disappointing macroeconomic data.
And now many market commentators and traders believe that a market correction could be just around the corner.
The mood is getting gloomy
A survey from Deutsche Bank underlines the increasingly-pessimistic mood among investors. The bank said that a stock market crash by the end of the year is “an overwhelming consensus now” after 58% of global investors it quizzed said that they expected a correction of between 5% and 10% by the end of 2021.
This is significantly more than the 31% that think global stock markets will reach 2022 basically unchanged. What’s more, a tenth of the 550 respondents Deutsche Bank surveyed said that they expected a drop of above 10% by year-end.
A whopping 53% of those quizzed said that new Covid-19 variants that bypass vaccines pose the biggest risks to stock markets. Soaring inflation, disappointing economic growth, premature central bank policy tightening and waning vaccination efficacy were also cited as major dangers.
What I’ll do if stock markets crash
That being said, tying to guess whether stock markets will crash or rocket in the near term is notoriously difficult. A broad array of economic, political and social factors can all mix to make UK share prices behave in unexpected ways.
What’s important is to know how to react if a stock market crash does happen. And I know how I’ll react. I’ve already taken the opportunity to go dip-buying following some meaty (and in my opinion unjustified) share price drops in recent days. And if a major correction happens again, I’ll be ready to go bargain shopping again.
I bought a number of UK shares following the stock market crash of early 2020. And almost all of these have jumped in value during the subsequent bull market. Tritax Big Box REIT, Games Workshop and Coca-Cola HBC are just a few of the names that have rocketed in value.
But I didn’t buy them in anticipation of big price increases in the short-to-medium term. At The Motley Fool we buy shares according to what returns we think we could make over a period of years. And I think those UK shares I mentioned could make me a lot of cash over the next decade or so. Buying them following the 2020 stock market crash simply gave me a chance to give my overall returns an extra little bump. History shows that stock markets crashes always recover strongly in the years following a correction. So I’ll be shopping for top UK shares if other investors start panic-selling again.
