Monday wasn’t a great day for share prices as stocks fell due to investors fretting over Covid-19’s Delta variant spreading. The UK’s FTSE 100 index closed down 164 points (2.3%) at 6,844.39, while the US S&P 500 lost almost 70 points (1.6%) to close at 4,258.49. However, both indices rebounded on Tuesday, with the Footsie clawing back almost 37 points (0.5%) and the S&P 500 adding nearly 73 points (1.7%). This rebound quelled fears about a stock market crash, but investors remain nervous.
Stock market crash fears subside
For me, it’s worth noting how nervous and volatile markets are right now. The S&P 500’s Monday decline was its steepest fall in over two months. Likewise, as investors rushed to the safety of US Treasury bonds, the yield on the 10-year bond dropped to 1.19% on Monday, its lowest level since February. Also, the pound fell to around $1.36, the lowest rate for six months. But are these numbers really worth worrying about? After all, they are hardly indicative of a coming stock market crash, are they?
Then again, it could easily be argued that stock markets (particularly in the US) are priced pretty close to perfection. And the world faces an uphill battle to wipe out coronavirus, particularly emerging strains such as the Delta variant. Likewise, slowing vaccination rates in developed nations and rapidly rising infection rates in the developing world are troubling trends. However, I see six reasons to be cheerful — and no clear signs of any imminent stock market crash.
Six factors supporting share prices
I know that many investors take fright when Mr Market periodically sneezes. But I was recently uplifted by an excellent quote from investment guru John C Bogle. The late, great Jack said: “In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses.” Furthermore, I can think of at least six positive factors supporting company earnings and, therefore, reducing the risk of a stock market crash.
First, investors are optimistic about global growth. In the US, economists expect annualised economic growth of around 9% from April to June to be reported. Second, corporate earnings are expected to have surged in the second quarter (partly due to weak results in Q2/20). Third, Covid-19 vaccine rollouts have gone well in major economies, including the UK and US. Fourth, central banks’ monetary policy is extremely accommodative (loose), with no US rate rises expected before late 2022. Fifth, the US government plans to spend trillions of dollars on infrastructure projects and other fiscal stimulus. Finally, after 18 months of on-off lockdowns, many consumers have amassed huge cash savings, while borrowing is the cheapest it’s ever been. Hardly an obvious recipe for a stock market crash, surely?
I’m backing value all the way
Although I’m concerned about overvaluation within frothy US stocks, I don’t see this problem here in the UK. Indeed, I consider the FTSE 100 to be very much in the cheap category in historical terms. And as Jack Bogle advises, I aim to look beyond market movements and, hunt for good businesses to buy into instead. Today, I just discovered almost £18,000 in cash temporarily overlooked in a legacy pension. Without delay, I will invest this lump sum into cheap UK shares. And when a stock market crash eventually arrives, I’ll keep investing in great global businesses!
