After tumbling into correction territory, both the S&P 500 and Nasdaq have investors spooked by a potential US stock market crash later this month. There’s a lot of critical macroeconomic data coming out in April that could confirm investors’ worst fears, sparking a new round of sell-offs. Of course, this data could also reveal that the situation may not be as dire as everyone seems to think.
So, what’s behind the rising bearish sentiment? And what should investors do to prepare?
The impact of tariffs
The impact of US tariffs is hardly a new story in the headlines. However, April is the month when investors get to find out exactly how much short-term damage they might be doing to the US economy. The latest forecast from GDPNow anticipates a 2.8% contraction of US GDP in the first quarter of 2025. However, on April 30, the Bureau of Economic Analysis will release its GDP report for the first quarter. If it reveals worse-than-expected results, a stock market sell-off could follow.
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Moreover, volatility could continue beyond April. As tariffs and short-term inflation rise, the journey towards lower interest rates could be extended. And the pressure on businesses with debt-heavy balance sheets may take longer to lift.
Should GDP continue to contract in the second quarter of 2025, a technical recession would officially hit America. And recessions come with lower consumer spending, lower growth, and higher uncertainty. Needless to say, that’s the perfect recipe for creating investor panic, especially for some US stocks trading at lofty valuations.
A rare opportunity
No one knows for certain whether the stock market will crash by the end of April. Personally, my hunch is that we’re more likely to see a steeper correction rather than a full-blown crash. Regardless, the strategy to capitalise on this volatility remains the same – conserve cash and create a shopping list.
By having some dry powder at the ready and a list of stocks already researched, investors can quickly deploy capital into potentially winning opportunities.
For example, one US business I’ve got my eye on is Toast (NYSE:TOST). The technology firm offers hardware and software that allows restaurateurs to manage operations. That includes ordering, payment processing, inventory management, ingredient price tracking, payroll, accounting, deliveries, and everything else needed to keep things running smoothly and headache-free.
The company earns the bulk of its revenue by charging fees on each transaction moving through its network. That’s a powerful growth engine when people are going out dining. But during a recession, when money is tight, growth is likely to slow for Toast, dragging down investor sentiment and, with it, the stock price.
Economic slowdowns are a risk Toast will always have to endure alongside intense competition. However, with a debt-free balance sheet and $1.4bn of cash & equivalents in the bank, the group appears to have ample financial flexibility to navigate the storm. That’s why if a stock market crash does materialise, I plan on buying more Toast shares for my portfolio.
