Will the market fall by a fifth next year? The 20% mark is commonly agreed to be a stock market crash, and the signs suggest one might be heading our way next year in my opinion.
The wider economy has been stuttering. We’ve avoided a recession so far, but barely. The last few quarters of gross domestic product (GDP) growth have not been impressive, and 2024 might be the year we enter the dreaded R-word.
| Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | |
| GDP Growth | 0.5% | 0.1% | -0.1% | 0.1% | 0.3% | 0.2% | 0.0% |
We can add the recently released data for October to this. It was not good. The economy saw a 0.3% decline in a single month. Goldman Sachs and JP Morgan both lowered their UK growth forecasts in response to the massive drop.
And even though we’ve avoided two consecutive quarters of GDP decline, investor sentiment has been poor anyway. After reaching 8,000 for the first time in February, the FTSE 100 has lurched to another disappointing 12 months.
Not positive
The FTSE 250 might be a better bellwether for the domestic economy, with a higher percentage of revenues coming from within these shores. Well, the smaller index has performed even worse year to date.
Inflation rates are still high, too. This means less company borrowing and less consumer spending, neither of which are positive for stock market performance.
The October decline has put pressure on the Bank of England to reduce rates, but forecasts show we might still be above 5% until 2025. The next 12 months might be crucial then.
And inflation isn’t taking a dent to consumer spending, it’s taking a huge chunk out of it. According to the Office for National Statistics (ONS), six in 10 Brits are spending less on non-essentials. Four in 10 are spending less on essential products.
It’s hard not to think this isn’t going to affect the markets sooner or later.
What to do
I can’t ignore global events, either. We’ve got a stalemate in Ukraine, a powder keg in the Middle East, and war games being played in the South China Sea. Sadly, there’s a lot that might go wrong next year.
So what to do about all this? Well, I won’t be selling any stocks. Whether a crash looks likely or not, the famous Keynes quote “Markets can remain irrational longer than you can remain solvent” is worth bearing in mind.
What I will be doing is looking for cut-price opportunities. History shows crashes can throw up a few bargains.
A few bargains
The 2020 pandemic crash led to plenty of cheap shares. Energy firms like BP, Shell and Centrica all took a major hit as people were staying indoors, and planes and cars weren’t travelling. Centrica is up nearly five times since then.
I’ll mention Rolls-Royce here too. The engine maker’s prospects looked glum during the pandemic. The shares were as cheap as 39p a one point in 2020. They now go for 308p apiece.
Bargain stocks weren’t limited to the Covid crash either. The 2008 crash devastated housing stocks.
Those same stocks went on to be some of the biggest winners in the years following. Persimmon offered shareholders a 12 times return up to 2021, to give one example.
Would a potential 2024 crash present buys as good as these? Impossible to say. But if you ask me, it’s worth preparing for.
