As the UK Stock Market continues to tumble and uncertainty abounds in response to the world’s coronavirus pandemic, there’s an eery similarity to the 1929 stock market crash on Wall Street.
The 1929 stock market crash, or Great Crash, is considered to be the most destructive stock market crash in US history, mainly because it signalled the start of the Great Depression. A big crash on the London Stock Exchange also preceded it on September 20 1929.
Covid-19 is bad news for stocks as well as a tragedy for people. The world’s financial markets have rarely seen such turmoil across the board. The FTSE 100 fell 7.7% a week ago on March 9, three days later it fell 10.9% and today it’s down 7.7% as I write.
The Fed yesterday cut interest rates to zero and The Bank of England cut its interest rate to 0.25% last week. The government has pledged billions of pounds to help businesses and individuals cope with the downturn, but none of it appears to be making any difference and the stock markets continue to fall.
As the FTSE 100 and FTSE 250 crash, many companies are looking at an uncertain future. I think dividend cuts are on the cards and some businesses may well face go under as they did in the 1929 stock market crash.
However, the FTSE is full of strong businesses and I do think many companies will survive. At the Fool, we take a long-term view of investing and this is a time to look to buy such businesses for the future, possibly the distant future.
I’d avoid oil stocks and any firms with high levels of debt. I don’t think we’ve reached the bottom of the crash yet, so it’s a time to be researching and creating a watchlist of good quality companies to buy when the market shows signs of recovery.
I think a global recession is now likely, as is an extended bear market. For active investors, this doesn’t have to be as bad as it may sound.
Long-term investing should be for a period of years. It’s about buying shares in good quality companies that can stand the test of time. Although the market may have further to fall, as it did in the 1929 stock market crash, this means overpriced companies become affordable and strong businesses become value plays.
Seek safe sectors
The demise of FlyBe and the spectacular Cineworld share price fall (down 75% in a month) are clear warnings for their sectors. Meanwhile, the Tesco share price hasn’t suffered too badly in comparison, down 14% in a month. It’s well placed to cater to the panic-buying masses and geared to provide its grocery home-delivery service to those in self-isolation, unlike the budget supermarkets, Lidl and Aldi.
The Reckitt Benckiser share price is down 16% in a month but as the maker of Dettol, it looks to be experiencing heightened demand for some of its products.
I’d be wary of buying any of these stocks too soon though, in case the market has further to fall. But I think it’s wise to be researching good buys for the future.
There are many top quality companies on the FTSE 350 but even if this does end up being as bad as the 1929 stock market crash, it will eventually recover and savvy investors will have made their fortunes.
It’s ugly out there…
The threat posed by the coronavirus outbreak has spooked global markets, sending stock prices reeling.
And with the Covid-19 virus now beginning to spread beyond of China and Italy, it seems very likely that the bull market we’ve enjoyed over the past decade could finally be coming to an end.
Against such a backdrop of market worry, it’s little wonder that many investors are starting to panic. (After all, nobody likes to see the value of their portfolio fall significantly in such a short space of time.)
Fortunately, The Motley Fool is here to help, and you don’t have to face this alone…
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.