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Stock market crash! Are we heading for meltdown as inflation spikes?

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Dictionary definition of inflation
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As US inflation spikes to 5%, fears of a stock market crash are growing again. The last decade of rising share prices has been fuelled by easy money and low interest rates, but rising inflation could put a stop to both of those.

If the US Federal Reserve and Bank of England are forced to rein in stimulus and increase borrowing costs to stop the economy from overheating, markets could take a beating.

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A stock market crash may seem far off with the FTSE 100 rebounding almost 40% since last year’s crash in March, to consolidate above 7,000. In the US, the S&P 500 broke through 4,000 for the first time ever in April, and has ploughed on to 4,239. However, as we saw last year, things can quickly change.

There’s never been a time when somebody isn’t worrying about a potential stock market crash. People have been predicting them pretty much constantly since the financial crisis. The extreme monetary measures politicians and central bankers adopted in 2008 and 2009 are partly to blame.

Nobody can predict the next stock market crash

The economy has been propped up by quantitative easing and near-zero interest rates, and so have asset prices. It all feels a bit suspect. People are right to worry about what might happen if central bankers are forced to tighten.

Stock market crash talk wouldn’t stop me from investing today, or any day, really. If it did, then I’d never invest in shares. I’d have spent the last decade clinging to the comfort of cash, only to watch its value fall in real terms while equities raced ahead.

The truth is that nobody can predict a stock market crash with any accuracy. Or anything, really. Right now, the global economy looks set for a bumper recovery, as vaccines protect populations, and lockdowns are eased. Yet there’s a lingering concern over Covid mutations. These already seem likely to delay the 21 June reopening in the UK.

Then if we do reopen, some fear everything will fly too far, too fast, triggering a stock market crash. It seems we’re damned if we do, damned if we don’t. This is why I choose to ignore all predictions, whether good or bad. Nobody knows what’s going to happen next.

I’m still buying top FTSE 100 shares today

All I can do is focus on the stocks in my own portfolio, and make sure I’m investing in top quality companies. I look for FTSE 100 stocks with solid bank balance sheets, steady revenues, loyal customers, minimal debt, and a robust defensive ‘moat’ against competitors. That should leave them well-placed to survive even a serious stock market crash.

If share prices do crash, I’d look to scoop up my favourite companies at the reduced price. After that, I will continue to do what I always do. Which is to hold shares for the long term, to retirement and beyond. That turns a stock market crash into an opportunity, rather than a threat.

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Harvey Jones 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.

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