3 reasons to expect an October stock market crash

Confidence in financial markets remains pretty flaky as we move towards the end of 2021. Here’s why I think a stock market crash could be around the corner.

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The chances of an October stock market crash are growing in my opinion. The FTSE 100’s flailing for traction around the critical 7,000-point marker and threatens to plunge lower. The FTSE 250 meanwhile has just sunk to its lowest level since July.

Here are the three main reasons why I think UK share prices could collapse in October.

#1: China’s property sector deteriorates

The popular saying among economists is that “when China sneezes the world catches a cold”. So it’s no shock that worries over the Chinese real estate market caused a mini stock market crash in September.

Regulations concerning China’s property market have been significantly tightened to curb aggressive business practices. Liquidity problems for the industry have subsequently jumped and pushed giant developer Evergrande to the brink. More could follow in the days and weeks ahead.

Brokers at Nomura are certainly fearing further bloodshed. They recently said that “we expect Beijing to maintain its property-related tightening measures and a rapid weakening of the property sector to deal a severe blow to headline GDP growth and government revenue.”

#2: Energy prices continue soaring

Surging energy prices are also threatening to damage global growth and cause a fresh stock market crash. Wholesale gas prices are soaring across the world and in the UK they just struck record highs (of £3.55 per therm). Oil values are also rocketing and the Brent benchmark in London has recently touched three-year peaks above $82.50 per barrel.

Energy values have cooled in recent hours after Russia’s president Vladimir Putin vowed to pump more gas to Europe. However, with a very cold winter being tipped in some parts, it could be a matter of time before these commodities soar again in price. This threatens to skewer consumer spending power and severely inflate factory costs.

#3: Broader inflationary worries worsen

Rising energy prices aren’t the only thing pushing up global inflation. Severe supply chain problems caused by Covid-19 restrictions, Brexit-related trade disruption, and a shortage of shipping containers is also pushing up prices. New Zealand unexpectedly raised interest rates in response this week, for the first time since 2014. Similar action from other central banks could be forthcoming in another blow to economic recovery.

Latest consumer price inflation data in the UK came in at a higher-than-expected 3.2% in August. It was also the biggest month-on-month rise on record. Another worse-than-predicted release is a strong possibility that could also prompt another stock market crash.

I’ll buy shares if stock markets crash

I won’t run for cover and panic sell if UK share markets slump again, however. In fact I’ll be there with my debit card looking for bargains to buy. As a long-term investor, the threat of temporary price turbulence doesn’t scare me. Share markets have proved for centuries that they can be a great way to make money over a period of years.

Besides, there’s a wealth of information available to help investors like me navigate the uncertain economic climate. I’ll treat a fresh stock market crash as an opportunity, rather than something to fear.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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