It’s easy to predict a stock market crash — just predict one every year and eventually you’ll be right.
Last week’s FTSE 100 dip had folks worrying whether there’s anything worse just around the corner. That’s understandable, as it’s not every week we see the UK’s top stock index losing 4.4% of its value.
This week, it looks like the financial sky isn’t falling after all… yet. But the scare has had commentators everywhere pondering on what might cause a financial meltdown in the next 12 months. We are, in a few key ways, in unusual times.
Trade war
Tit-for-tat import tariffs between the US and China are raising fears of an escalating trade war. And should the world’s two biggest economies (by far) reach that point then we could well be set for a global recession. The thing with tariffs is that they actually benefit neither side, and further escalation would hurt both of them (and the rest of us).
The feeling seems to be that everyone will recognise that and that cooler and wiser heads will prevail. But I’d probably best not comment on whether cool and wise heads actually exist in positions of power on both sides.
There are also fears that the US economy is overheating. The IMF and the World Bank are predicting a peak growth of around 2.7-2.9% this year, with US growth slowing over the next few years.
Brexit fallout
Fears of a botched Brexit seem more realistic every time I switch on the news and hear what some clown or other is arguing today — it’s almost like two groups of kids arguing over whose ball it is.
A UK house price crash could also feed into an economic slowdown, with some predicting falls of 30% and more should Brexit go badly wrong.Â
If the worst of all these outcomes should conspire together then, yes, we might indeed see a stock market crash in 2019.
Surprise!
But you know what? Experience shows that stock market crashes tend to come along when financial commentators around the world are least expecting them. The most widely predicted crashes are the ones that tend not to happen.
And things we might expect to be good leading indicators of a stock market downturn actually tend not to be. For example, a few years ago, the world was half expecting a slowdown in the overheating Chinese economy to trigger a worldwide slump — and that’s an economy that was growing at around 7% per year. But nobody seems scared of a Chinese “hard landing” now.
Precautions
I’m actively investing in a way that I think should help deal with any stock market slump that might come along. I’m not investing in any speculative, high-risk shares that could be among the first to fall. I’m also steering clear of growth shares on very high valuations, whatever their prospects look like. And finally, I’m mostly going for what I see as reliable dividends, from companies that should be able to weather most any crisis that should come along.
But that’s the way I approach investing anyway, and it’s nothing to do with any 2019 threat. While I actually think it’s unlikely, I haven’t a clue whether there will be a crash in 2019… and neither has anybody else. I say just ignore it and carry on.