A stock market crash always comes as a jolt (even as an experienced investor), and especially when it’s triggered by a wider worry, as is the case today. The FTSE 100 was down by more than 3% this morning, over fears that a highly-mutated Covid strain discovered in Southern Africa will trigger another wave of shutdowns.
The airlines have been hit particularly hard, with British Airways owner IAG down more than 16%, at time of writing. Ryanair is down 10% and easyJet down by 13%. Aircraft engine maker Rolls-Royce has fallen 5.5%, as fears grow over international travel.
FTSE 100 energy giants BP and Shell are also down around 5% or 6%, as any Covid resurgence could hit demand for oil.
Who’s afraid of a stock market crash?
Judging by the sectors hit today, it’s beginning to feel a lot like March 2020. As well as FTSE 100 travel and energy stocks, entertainment enterprises are in the mire. Cineworld, Mitchells & Butlers and Restaurant Group are firmly out of favour. Online grocery delivery specialist Ocado Group is bucking the trend by climbing.
As Hargreaves Lansdown markets analyst Susannah Streeter has noted, scientists are calling the mutations “horrific” and of “great concern”. Their dire warnings have triggered a sell off in Asia, where Japan’s Nikkei and Hong Kong’s Hang Seng both fell by 2.6%, while in Europe, the DAX, CAC 40, and Euro STOXX 100 are all tumbling.
I have cautiously backed both BP and Shell in recent days, but lacked the courage to buy airline stocks which look too exposed to pandemic uncertainties. That is one reason why I am relatively sanguine about today’s events (at least from an investment perspective). It’s not the most important one, though. As ever in the middle of a stock market crash, the idea of selling any of my shares or funds simply doesn’t occur to me.
I’ll buy FTSE shares once they get cheaper
I’m still more than a dozen years away from retirement, and that gives my portfolio plenty of time to recover from the current setback. With luck, today’s Covid fears will have been overdone. Even if they’re not, it’s impossible to assess the impact on stock markets. There are just too many variables, including how central bankers will respond.
If the stock market crash does lead to a more protracted slump, further stimulus could be forthcoming, bolstering shares. Investors have been quietly making that bet for years. The US Federal Reserve has effectively been backstopping share prices since the financial crisis.
My wider point is that nobody knows where stock markets will go next. They could crash further. If they do, I still won’t sell. Instead, I would take the opportunity to pick up my favourite FTSE stocks or funds at a reduced price.
History shows that stock markets always recover after a crash, if you give them long enough. In my opinion, they remain the best way to generate long-term dividend income and capital growth for my retirement. Today’s grim news won’t change that.