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Top money managers think we could see ANOTHER stock market crash in 2020. Here’s what I’m doing now

Since crashing spectacularly in February and March, major stock market indexes have staged phenomenal rebounds over the last few months. The S&P 500 index has risen roughly 40%. Meanwhile, the FTSE 100 – the UK’s most followed index – has rebounded nearly 30%.

This market rebound has no doubt been welcomed by investors. After taking a battering in February and March, most investor portfolios are now looking a great deal healthier. However, I wouldn’t relax just yet. According to the world’s top money managers, we could see another stock market crash in 2020.

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Another stock market crash

Worryingly, in last month’s Bank of America fund manager survey (a survey of over 200 money managers designed to monitor investor sentiment) nearly 70% of respondents said they believe the recent stock market rise is a ‘bear market rally.’ In other words, they expect the stock market to fall again. Most fund managers don’t see a ‘V-shaped’ economic recovery from the Covid-19 crisis.

The markets are priced to perfection,” says Danny Yong, Chief Investment Officer at hedge fund Dymon Asia Capital. “The stability in equity markets does not reflect the job losses and the insolvencies ahead of us globally. I believe we will see new lows in global equity markets later this year.”

Yong is not the only money manager who expects new stock market lows in the near future. For example, in a letter to investors, hedge fund Elliott Management recently wrote: “Our gut tells us that a 50 percent or deeper decline from the February top might be the ultimate path of global stock markets.”

The deepest recession in modern history

It’s not hard to see why professional money managers expect another stock market crash. The coronavirus has smashed the global economy and economic data looks bleak.

In the US, more than 40m people are unemployed and analysts believe that unemployment could potentially hit 20%.

Meanwhile, the Bank of England recently warned that the UK economy could shrink by 14% this year. It also said that unemployment could more than double from current levels as the coronavirus causes the deepest recession in modern history.

It’s fair to say that, right now, stock markets do not reflect the economic problems ahead.

Of course, stock market crashes are notoriously hard to predict.

I’m not going to sell all my stocks just because some investors are bearish.

However, given the enormous amount of economic uncertainty the world faces right now, I think it’s sensible to think about portfolio protection.

Portfolio protection

So, what am I doing to protect my portfolio?

Well, the first thing I’m doing is making some portfolio adjustments to ensure that I’m holding the right stocks in the current environment. When I say the right stocks, I mean high-quality, resilient businesses that have attractive long-term growth prospects.

If we see another stock market crash, some stocks are likely to be hit more than others. For example, in the last crash, Barclays shares fell about 60%. Meanwhile, Unilever shares fell just 22%. I’m trying to avoid stocks that could crash spectacularly.

Secondly, I’m stockpiling cash. While I’ve made a handful of investments recently, I’ve also been building up my cash pile. Right now, I’m not fully invested.

Keeping some cash on the sidelines will give me options in the event of another stock market crash. If share prices tank again, I’ll be ready to strike.

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Edward Sheldon owns shares in Unilever. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Barclays. 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.