Will we see a stock market crash this month? It’s always possible. Shares can crash at any time, so it makes sense to be prepared.
Sometimes, a crash comes out of the blue. That’s pretty much what happened on Black Monday in 1987, when automated trading strategies turned a dip into something far more dramatic. The 2020 pandemic plunge came swiftly too.
At other times, there’s a slow, creeping build-up. I remember the mounting sense of dread before the 2008 financial crisis. Plenty of investors are feeling that unease today. Politics is pushing to the extremes, US-China tensions are rising, and a glance at the gold price shows how nervous markets are. So yes, we could get a crash in February.
Nobody can predict a market correction
On the other hand, we could have had a crash at almost any point over the last few years, but didn’t. Investors who parked their wealth in cash will be kicking themselves, with the S&P 500 delivering double-digit gains for three years in a row. When they hear it’s returned double digits in six of the past seven years, they may need a second pillow.
Second-guessing market movements is a mug’s game. Until recently, many commentators had written off the FTSE 100. Last year it jumped 20%, with dividends on top. The average cash account paid roughly 3.5%.
That said, there are still genuine reasons to worry. We don’t yet know how artificial intelligence will play out. Will it be the productivity miracle we’ve been waiting for, or a terrifying bubble? Nobody knows.
It’s complex. AI could boost productivity by allowing companies to slash headcounts, lifting margins and profits. But if unemployment rises as a result, the knock-on effects could be ugly, hitting consumer stocks and even banks if debt impairments increase.
I’m keen to buy Barclays
I like to keep some cash in my trading account to take advantage of any crash or correction. And I know exactly what I’d buy first: FTSE 100 bank Barclays (LSE: BARC).
Its shares have had a spectacular run, up 265% over five years and 65% over the past 12 months. That also makes me wary. I dread piling into runaway stocks just as the wheels come off.
Banks have enjoyed a golden period as higher interest rates widened net interest margins, but that could fade if base rates are cut further, as expected.
So if we did get a market wobble and Barclays shares pulled back, I’d happily step in at a lower valuation. But like I said, nobody knows if that dip will come. The shares still look reasonable value on a price-to-earnings ratio of 13.3, and the board plans to return £10bn to shareholders through dividends and buybacks between 2024 and 2026. If I wait, I’ll miss my share.
Nobody knows whether markets will crash in February, but sitting on my hands just in case means missing opportunities today. Barclays could get more expensive.
There’s a simple way around this. Buy shares with a long-term view. Over time, that strategy should beat cash by a wide margin. Barclays is still worth considering, despite its success. And if the market does plunge, investors can always buy more at the lower price.
