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3 reasons why I believe another stock market crash could happen soon. And here’s how I’d invest now

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Exactly six months after the FTSE 100 index hit its lowest point in the year, the spectre of a stock market crash is raising its head again. So far in September, the index has closed below the 6,000 in half of the 16 trading sessions. By comparison, levels were more often than not above 6,000 in June, July, and August.  

Why a stock market crash can happen

While as investors, we’d really like the worst to be avoided, seeing this trend, we should be prepared for another stock market crash. Here are three catalysts that could trigger a crash – though this is by no means an exhaustive list:

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#1. Coronavirus cases surge: The race between the virus and the humans trying to control it seems to be intensifying. Increasing incidences of Covid-19 has prompted the UK government to implement fresh restrictions on public life. While there’s hope of better medicinal support in the coming months, winters will be here soon. This could further exacerbate Covid-19 and impact the FTSE 100 index. In the words of Prime Minister Boris Johnson, from his address yesterday“The fight against Covid, is by no means over”.

#2. Crashing economy: Even though economic indicators are starting to look better, and indeed the recession is behind us, the UK isn’t exactly out of the woods. I’m most concerned about what’s going to become of the labour market after the furlough scheme ends. Already, many leading companies have let go of employees. A worsening of the situation could impact the overall economy and cause another stock market crash. And I haven’t even talked about about longer-term issues like public debt. 

#3. No-deal Brexit: Not only has Brexit uncertainty taken a toll on the UK economy in the past few years, the prospect of a no-deal Brexit during a pandemic and an economic slowdown could make matters even worse. Recently, Britons in the EU were told that they wouldn’t be able to maintain their UK bank accounts in the case of a no-deal Brexit. This includes accounts with the likes of Lloyds Bank, which is already facing a perfect storm. 

Stocks I’d buy

I’d keep an eye out for these developments to prepare myself for a stock market crash. And if it does happen, I wouldn’t run for the hills, I’d buy shares that have run up in the past months and have the potential of rising fast again. Some of the FTSE 100 shares on my wishlist include the London Stock Exchange Group, which has performed quite well in the recent years. I also like the hygienist and pest control services provider Rentokil Initial, which is a good defensive to hold during challenging times. And last, I like Unilever for its international presence and longevity. 

In sum, yes there are reasons to prepare for another market crash, but there are also investing opportunities. We just need to refrain from doomsday thinking and reacting with panic. 

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

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