Recently, there has been a lot of press coverage over the economic fallout that the coronavirus outbreak will cause. Although the news is certainly worrying, a second stock market crash isn’t guaranteed.
Year-to-date, the FTSE 100 has already fallen by 18%. I think this means that there are already many shares trading at a cheap valuation. Is it worth waiting for a hypothetical second market crash, or to buy shares now?
Second stock market crash
The prospect of a second market crash is far from certain. A future recession is now talked about as an expectation, and we already have indications on how the virus will affect businesses operations.
Declining consumer confidence will impact the economy, and will probably result in job losses. Of course, a lot depends on whether there will be a second wave of the coronavirus, in which case I imagine there will certainly be another market crash, sending FTSE 100 shares tumbling. However, the FTSE 100 index has had a bit of a rally recently, increasing by 24% since its low-point in March.
With a deep recession potentially looming, you should hold off from buying shares, right?
Not necessarily.
Buying cheap FTSE 100 shares
I wouldn’t encourage buying shares in industries that have been on the brink of disaster since the coronavirus outbreak struck, like airlines or international travel companies.
However, I think there is an opportunity to buy cheap FTSE 100 shares if you’re being careful with your investments. There is a chance to buy resilient businesses with a competitive edge against rivals in this market. Companies operating in localised travel or selling cheap consumable items are ticking boxes for me at the moment.
In addition to the resilient companies already in a strong position, we should be aware that consumer habits will possibly change in the future. Other organisations will benefit from this situation.
As well as seeking out the opportunity to buy cheap FTSE 100 shares, there is another way that investors might be able to lessen their risk. This is by pound-cost-averaging, where a set sum is invested at regular intervals. By investing in this way, investments will be made when the market goes up and down. Over time the price paid for shares averages out.
Hunting shares
Would I wait for the next market crash before investing?
No. There are plenty of FTSE 100 companies still trading profitably. Some of these shares look cheap to me, and I feel the market is unfairly pricing them. As a long-term investor, I’m prepared to buy and hold shares for decades.
However, in these times, investors need to exercise caution. We could still be feeling the ramifications from the coronavirus for years to come. Surely we will see more businesses and industries suffer in the short term.
However, with lots of FTSE 100 shares looking cheap, I’d be buying shares now to benefit from the likely long-term recovery of the market.