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Are we seeing a slow-motion second stock market crash right now?

The stock market crash in the spring was brutal. Shares dropped like an elevator with a broken cable. Covid-19 hit the world hard and fast, and economies locked down all over the world.

Since then, the threat of a second stock market crash has been hanging in the air. Many people have heard how the second wave of the Spanish flu pandemic was worse than the first just over 100 years ago. Naturally, we all fear a similar scenario now.

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Will the second stock market crash be in slow motion?

And just lately, there have been a few worrying signs of the virus bubbling back up around the world. Even our prime minister, Boris Johnson, has been talking about the possible beginnings of a second wave abroad.

But it’s not decisive. It’s not absolute. And I reckon that’s why we haven’t seen a massive second crash in the stock market so far this year. But with the rising concerns about the virus, I do think we are seeing some shares rolling over and giving back some of the gains they made following the spring crash. Are we seeing a second stock market crash developing in slow motion?

Look at bank shares, for example. At today’s share price around 102p, Barclays is about 23% down from its recent bounce-back peak. And at just over 26p,  Lloyds Banking Group has retraced back down by 30%. It’s happening in other sectors too. At 620p, housebuilder Vistry is around 30% down and heading in the direction of its spring lows. And at 120p, Taylor Wimpey is 28% lower.

Meanwhile, airline operator easyJet is more than 40% down again, and food-service provider Compass has retraced lower by 25%. It seems that all these businesses have one thing in common – they would all be hit hard if Covid-19 caused more lockdowns in the economy.

Some names remain strong

In fairness, not all shares are taking back recent gains. Just yesterday for example, fashion clothing and accessories retailer Next shot up by around 10% in just one day. The company issued a positive trading statement declaring sales had been better than expected through the coronavirus crisis.

And plumbing and heating supplies distributor Ferguson is holding on to recent gains. As are security software provider Avast, retailer Dunelm, and consumer goods champions Unilever and Reckitt Benckiser.

I think the weakness we’re seeing in the out-and-out cyclical businesses underlines how sensitive and vulnerable they are to wider economic conditions. Meanwhile, investing guru Warren Buffett teaches us to cheer lower prices in the stock market. When the stock market moves lower and share prices fall, there’s more chance of picking up a bargain with shares.

There are differences in performance and investor sentiment between various sectors. I reckon that demonstrates how important it is to marry your search for ‘cheap’ with a focus on the quality of the underlying business.

Now’s a good time to go shopping for shares, but I’d be very selective in my choices.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of Next. The Motley Fool UK has recommended Barclays, Compass Group, Lloyds Banking Group, and Unilever. 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.