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2 reasons why I think the FTSE 100 could crash again in May – and what I’d do

April provided stressed-out share pickers with a welcome breather in the midst of the rolling coronavirus crisis. Some of the rises across global equity bourses were in fact rather staggering. Take the FTSE 100, for example. Britain’s blue-chip index rose more than 4% over the course of April, its best monthly result for around two years.

It’s clearly too early to break out the bunting though. The Footsie endured its largest one-day fall for a month on the final day of April. And May’s got off to an inauspicious start too, the FTSE 100 down by triple-digits and falling away from 6,000 points again. There are multiple reasons why global stock markets could keep on reversing during this new month.

Lockdown easing fails

Investor confidence picked up last month as quarantine measures began to be lifted in parts of Europe and the US. Signs that life is returning to normality, and that an economic recovery can tentatively begin, arguably caused market-makers to become a little too confident.

Why? Well a leap in German infection rates following an easing of lockdown conditions on April 20 suggests that other nations might think twice before opening up again. The number of Covid-19 cases has moved back into the thousands, raising fears of a second wave of mass infections. This could drag the FTSE 100 lower again.

Screen of price moves in the FTSE 100

US-China tensions grow

Growing tension between the US and China is another reason why risk appetite has dived in recent hours. Bickering over trade terms between the two superpowers has hampered global economic growth over the past couple of years. It was hoped that 2020 would prove to be a breakthrough year though, after the first stage of negotiations were sealed late last year.

The coronavirus outbreak has clearly changed the game. US President Trump first drew the ire of Beijing in mid-March by describing the deadly strain as “the Chinese virus.” The rhetoric has worsened still further. This week Trump suggested that Covid-19 was created by China to help facilitate his defeat in November’s election. He reiterated his claim that China should pay the US damages to cover the economic cost of the outbreak too.

Addressing the trade deal directly, Trump says that the crisis has “upset very badly” the successful negotiations of late 2019. It’s hard to see how President Xi would disagree. This particular crisis clearly has more road ahead of it.

Don’t panic, Footsie investors!

The coronavirus outbreak means that FTSE 100 investors of course need to be more careful before investing their money. The prospect of another Great Depression has changed the outlook for the new decade significantly. A lot of businesses are sure to struggle or fail entirely.

We at The Motley Fool believe that long-term investors needn’t be too alarmed. Successful share pickers tend to be ones that buy their shares with a view to holding them for five, 10, perhaps 20 years or more. And with the right investment strategy, it’s still possible to build a portfolio of stock market stars that could make you some seriously terrific returns.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.