UK shares are struggling to make gains as worries over the macroeconomic and geopolitical landscape endure.
As I type, the FTSE 100 and FTSE 250 are both basically flat mirroring price action on other major indices.
Many investors are concerned that a full-blown stock market crash could be around the corner. But what are the chances of share prices crashing in the coming days or weeks? And should I pull back on my plans to keep investing in British stocks?
Food for thought
There are several good reasons to expect a fresh correction in global share prices. These include:
1. Escalating conflict in the Middle East
Tragic events in Israel and Gaza in recent days have raised the spectre of an all-out regional war. A major political destabilisation in the Middle East would have deep and far-reaching geopolitical consequences, and exacerbate existing tensions following Russia’s invasion of Ukraine.
2. Worsening inflation news
Recent rate pauses by the Federal Reserve and Bank of England have fed hopes that borrowing costs may have peaked. But the road out of high inflation is never a straightforward one, as recent data has shown. So central banks could well continue raising rates well into 2024 and/or keep them higher for longer.
3. Bad news from China
China’s post-pandemic recovery has been patchy at best, while signs of a possible meltdown in the country’s real estate sector aren’t going away. Fresh batches of disappointing economic and property industry data could send investors heading for cover again.
4. An oil price surge
Brent crude prices have been threatening to move through $100 per barrel again in recent weeks. If OPEC+ producers keep output curbs in place, and US oil stockpiles continue to dwindle, a move through this critical barrier is highly possible. A military conflict in the Middle East would also give oil prices significant strength.
Here’s what I’m doing now
None of us can accurately predict the timing and scale of any potential stock market crash. In fact, despite the bleak outlook, UK share prices might not decline markedly at all.
As noted economist John Maynard Keynes famously said: “Markets can remain irrational longer than you can remain solvent.”
What is critical is how investors react to market events. And it’s my plan to go bargain hunting if London stock markets slump.
In times like this I’m also reminded of billionaire investor Warren Buffett’s observation that:
“in the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts: the Depression, a dozen or so recessions and financial panics, oil shocks, a flu epidemic, and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
Those that bought in at the bottom of the market made a fortune in the process. But this was no isolated phenomenon. More recently, strong dip buying by investors following the 2008 financial crisis has led to an explosion in the number of Stocks and Shares ISA millionaires.
Past performance is no guarantee of future success, of course. But if shares slump again I’ll be looking to add some quality stocks to my UK shares portfolio. It could help me to supercharge my long-term returns.
