The FTSE 100 could fall to 5,000 now. That may sound contradictory at a time when the index has just breached 6,500. This is an impressive achievement going by the stock market crash earlier in the year. It would be complacent, however, to think that nothing can go wrong now.
The odds are against a coronavirus curveball style Black Swan event striking again this year. But, there is a very high chance of an imminent danger derailing all the progress made since the stock market crash of early March. I’m talking about the no-deal Brexit.
In another article today I talk about how my news feed has been inundated with Brexit bad news today. Brexit-related uncertainty kept the FTSE 100 index in limbo for years. And the markets had to crash spectacularly earlier this year to make solid gains again (also to forget about Brexit for a while).
But Brexit’s back in the news and, given the tight deadline, this time we should be prepared for a no-deal Brexit. The reason I’m pointing this out is that as unsettling as it might be we should buy high-quality FTSE 100 stocks if it does. This is especially so if we missed the last crash.
I also think that the stocks that will rally fastest if a Brexit-related crash happens could be very different from those in the last stock market crash. Vaccine makers and gold mining stocks are unlikely to rally like they did the last time, for instance.
FTSE 100 stocks to watch now
I do however think that two segments will see a healthy bounce back. The first is classic defensives, which refers to stocks of companies that are unavoidable purchases. One example is the FTSE 100 consumer goods stock Unilever. Damage to the company has been limited this year despite the lockdown.
Another stock to look out for is the e-grocer Ocado, whose sales went through the roof during the lockdown. If a stock market crash happens now, it can rally on two counts. Not only are we not entirely out of the Covid-19 woods, but investor interest is heightened in defensives during crashes because they are safer options.
FTSE 100 healthcare stocks can also continue to benefit for the same reason. I’d think of stocks like Hikma Pharmaceuticals and AstraZeneca if this happens. Their past share price movements and performance gives me confidence.
The other set of stocks to consider is the internationally diversified ones, which will be impacted less by a stock market crash and a potential downturn in the UK. In fact, a stock like ULVR benefits here as well, given its strong Asia presence. But there are others as well, that can hold us in good stead. They are good stocks to buy even if there’s no crash, but great if there is one.
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Manika Premsingh owns shares of AstraZeneca and Ocado Group. The Motley Fool UK has recommended Hikma Pharmaceuticals 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.