First, we have a US bank failure. Next, FTSE 100 banks hit a slump, and take UK shares across the board down with them.
Does that sound like 2007, when the global banking crisis kicked off? It does to me. So is a new stock market crash just starting?
The FTSE 100 has already fallen 6% since last month’s all-time high. And I think we should prepare for a crash, just in case.
Big fall
Barclays is one of the big losers. Unlike others, it does business in the US, so it’s more at risk from bank failures there.
Barclays shares fell 25% from their February high. There’s no clear gauge of what defines a crash, but that’s a big drop.
The whole FTSE 100 looks rough right now, but the banks are among the worst affected. That doesn’t surprise me, as the latest threat is all about finance.
Financial crunch
We were supposed to see inflation falling by now. And then central banks would bring interest rates down. But it’s just not happening. Inflation remains high. As a result, we’re worrying about base rates rising yet again.
Higher interest rates make cash and bonds more attractive. And they make borrowing more painful too. It all creates more uncertainty in the business world. And that drives cash away from the stock market and into safer havens.
Safe cash?
Right now, some Cash ISAs offer 4% on a fixed one-year term. So I can understand people taking a break from shares to stash cash there for a year. But I don’t want to do that.
So what is the solution? If a FTSE 100 crash is on the cards for 2023, how should we prepare?
A stock market crash has to be one of the best things to help us buy cheap shares and tie in higher future returns. So I think long-term investors should be doing one key thing.
Value shares
We should be making lists of shares we think are cheap, to buy if they get even cheaper. So, which ones?
Bank shares look like top value to me. I think price-to-earnings (P/E) valuations of half the FTSE 100 average are very cheap anyway. Barclays has now dropped well below even that, to under five. That’s madness, surely.
If I wanted to reduce the risk of volatility, I’d go for reliable dividend stocks, like National Grid and Imperial Brands. I like those anyway.
Growth
But here’s one thing that might sound a bit crazy. Growth shares can be a great buy when the stock market is in a slump.
Have you watched Tesla, Amazon, ASML, Illumina all falling in the US tech stock slump? For those who see long-term growth from them, now might be a great time to buy. I did exactly that, by buying Scottish Mortgage Investment Trust shares.
The bottom line for me is that if we see a FTSE 100 crash in 2023, it could provide great chances to buy top value shares at low prices.
