I’ve recently become worried about a stock market crash. In the past, I’ve prioritised assessing a company’s internal risks over external factors. As society has reopened, I’ve identified multiple issues facing companies worldwide that could cause the next crash.
My own investment strategy usually means that 10% of my holdings are high risk. While I’m still going to keep my current positions, going forward, I’ll invest more in defensive stocks. Here’s why.
The delta variant and a stock market crash
In the US, 83% of new cases are due to the delta variant, up from just 50% two weeks ago. Between 2 August and 16 August, cases grew from 85,000 to 142,000 per day. In six states, less than 10% of ICU beds are available, and they’re also struggling with oxygen scarcity. And there were 1,300 daily deaths this week, the most since March.
As schools reopen, I expect the US healthcare system to come under increasing strain. If there’s further economic restrictions, markets could experience a shock similar to that of March 2019. Of course, some stocks like vaccine makers Pfizer and Moderna could do well. Lockdown winners Zoom and Peloton could also see a resurgence.
China’s new stock exchange
There’s a new exchange opening in Beijing. As the capital city of China, this comes with political connotations. The Chinese government has signalled that it intends to crack down on Chinese stocks listed in the US, with many technology stocks recently coming under increased regulatory pressure. BYD was just forced to suspend plans to sell shares in its semiconductor making unit.
And the global chip shortage is causing serious damage to car manufacturing. General Motors has halted output at most of its North American plants for two weeks. Ford and Toyota have also cut production. US-based Intel, the world’s largest chip manufacturer, could see a share price jump over the next year if it’s able to increase production.
The UK’s CBI believes the labour shortage could last for at least two years. There’s shortages in many sectors, including fruit pickers, meat processers, livestock and factory workers, carpenters, chefs, and cleaners. It’s so severe, there’s a plan to use prisoners to get production back up.
Some branches of McDonalds in the US are hiring 14-year-olds. Many UK restaurants are now only open part-time for lack of staff. And Amazon is offering £50 bonuses to employees, simply for being on time.
A key concern is the shortage of HGV drivers. There’s now 100,000 fewer than the 600,000 working pre-pandemic. Ikea is the latest company to blame this shortage for supply issues. And every day, another company reports fresh problems. Wages could rise to attract labour. Inflation would rise, and with it the possibility of interest rate increases.
Market highs, and a stock market crash
In 2007, the FTSE 100 closed at 6,547. By the end of 2008, it had fallen to 4,434, its biggest annual decline ever. The index is currently at 7,073 points.
Meanwhile, house prices in the UK are 30% higher than they were prior to the crash. Since 2009, there’s been £895bn of quantitative easing, and interest rates have also been held under 1%. Assets have a long way to fall.
With a million people coming off furlough next month, there could a be an employment reckoning. All these pressures worry me. I think the stock market crash could be coming soon.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charles Archer owns shares of Amazon. The Motley Fool UK owns shares of and has recommended Amazon, Peloton Interactive, and Zoom Video Communications. The Motley Fool UK has recommended Intel and Moderna Inc. and has recommended the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $57.50 calls on Intel, short January 2022 $1,940 calls on Amazon, and short January 2023 $57.50 puts on Intel. 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.