Everything looks a bit gloomy right now, as the stock market crash returned in force on Friday, with the FTSE 100 ending the day around 5% lower.
The stock market crash may get worse before it gets better, but at some point, share prices could recover rapidly. Now is the time to secure this year’s Stocks and Shares ISA allowance before the 5 April deadline.
Then you should go shopping for bargain shares, because when sentiment revives, the FTSE 100 could shoot up far faster than you expect.
AJ Bell investment director Russ Mould said that once you add up all US fiscal stimulus, including interbank funding and the fourth, unlimited round of quantitative easing, the Federal Reserve’s balance sheet has swollen by a fifth in just two weeks, to a blockbusting $5.2tr.
Stock market crash will turn
Last time the Fed delivered fiscal stimulus on this scale, was after the financial crisis. The tidal wave of liquidity drove the subsequent decade-long bull market. This run, the longest in US history, only came to an end when Covid-19 triggered today’s stock market crash.
Mould reckons it will happen all over again. Once we get some positive news on coronavirus, as we will at some point, the Fed’s liquidity gusher could create a stock market bubble to dwarf anything we have seen this millennium.
It will be further turbo-charged by domestic stimulus, as Chancellor Rishi Sunak and the Bank of England join in the emergency splurge. When all that comes together, the FTSE 100 could fly from today’s reduced levels.
If you start feeding money into your Stocks and Shares ISA today, when the stock market crash has knocked almost a third off share prices, you could benefit when the rebound ultimately comes.
Load your Stocks and Shares ISA
There is a chance that the monetary authorities will withdraw the stimulus just as the party is getting started, but only a slight chance. Again, history suggests they will leave all that hot money bubbling away, driving share prices higher and higher.
Remember that Donald Trump will be looking to get re-elected this year, and will want to take the credit for another stock market rally.
You still have to be brave to invest in the middle of a stock market crash like this one. I have topped up my FTSE 100 and FTSE All-Share trackers, but I found it unnerving, even though I have been waiting for such a buying opportunity for years.
As ever, you should never invest money you will need in the next five years, and ideally 30 or 40 years, especially if your job is menaced by the lockdown. If you can hold on for the long term, though, now could be a great time to invest.
The monetary authorities have been acting as a backstop to share prices ever since 2008. They are going to do it again. It’s not pretty, but that’s where we are. When this crash is over, the stimulus-fuelled FTSE 100 recovery may take us all by surprise.