As inflation rockets and recession looms, investors are bracing themselves for the next stock market crash. This year has already been bloody, especially for US tech stocks. New York’s Nasdaq is down 23.38% year to date, which puts it into bear market territory.
So far, the global stock market crash has largely bypassed the FTSE 100. It is actually up 1.07% year to date, to trade at 7,585.46, at time of writing. With everything else crashing – including bonds and gold – that is a solid performance.
The FTSE 100 is holding firm
That doesn’t mean UK shares won’t crash. The cost of living crisis is crushing consumers, who have less to spend on goods and services. The supply chain crisis is driving up business costs, as are rising wages. Smaller companies report an increase in late payments. Defaults will inevitably rise. This year will be tough.
It would be surprising if we did not see another stock market crash. This time, central bankers are not going to ride to the rescue either. The US Federal Reserve is particularly hawkish, and seems willing to let current troubles play out.
The Fed may just be talking tough. We’ll see. But every investor has to work on the assumption that the next stock market crash will not trigger another wave of fiscal and monetary stimulus. The ammunition has been used up. So why aren’t I worried?
I’m investing for the long term, 10-15 years in my case, and can look past short-term volatility. I’d be more worried if I had retired, and was using drawdown to top up my pension income. Instead, I’m still paying money into my pensions and Stocks and Shares ISAs. That means I can take any advantage of any market falls to buy more shares.
I’ll hold my nerve in a stock market crash
A market crash is undoubtedly scary. I don’t have special powers, and panic along with everybody else. Then I remind myself that I have endured many, many crashes before, and will do so again. The same thing has always happened after a crash (at least so far). Shares have rebounded.
This means a crash is a great opportunity to go shopping for my favourite FTSE 100 shares at what (I hope) are temporarily reduced valuations. After buying them, I will hold tight and wait for the recovery. If they fall further, and I’ve got cash to hand, I will buy more. While spreading my risk across half a dozen stocks.
That strategy has served me well so far. History suggests that markets always do recover after a stock market crash. I’m crossing my fingers that it will be the same this time. As a long-term investor, I can afford to give shares the time they need to bounce back, then rise to new highs.