Enduring a stock market crash is every investor’s worst nightmare. Unfortunately, this is something that long-term buy-and-hold shareholders will experience sooner or later. But maybe this month?
May usually sees new predictions for stock prices plummeting. “On sale in May and leave” is a saying that continues to be used even today, during a historic downturn in stocks.
Let’s consider some of the risks facing the stock market today.
march higher
Context matters. British stocks are doing well at the moment.
of FTSE100 The index has hit new highs in recent days.
of FTSE250 Although it is trading below its all-time high, it continues to trend higher this year.
As we climb the so-called “wall of fear,” I expect the voices of an impending crash to grow louder.
But as recent months have shown, avoiding stock market exposure entirely can mean sacrificing important benefits.
Interest level
One of the main factors to monitor is interest rates. Generally, when interest rates fall, stock prices rise because borrowing costs fall.
The Bank of England is due to announce its latest monetary policy decisions next week. The bond market is giving us a lot of clues about what to expect. There is often an inverse relationship between expected changes in interest rates and the price of gold.
Hopes for rate cuts have faded in 2024, as evidenced by the decline in government bonds. Nevertheless, yields have not yet exceeded last year’s levels, suggesting there is still optimism for easing policy.
Bank of England policymakers appear to be divided on how hawkish they should be on inflation. Investors may find important clues about the future direction of the stock market in May’s decision and accompanying guidance.
It’s the economy, idiot…or is it?
Another risk is the fundamental health of the UK economy.
We are waiting for confirmation that the UK will emerge successfully from recession. The signs are good, but not great. The GDP growth rate in February was 0.1%.
But bankruptcies are near the highest level in 20 years and slightly below levels seen during the 2008 financial crisis.
Furthermore, the OECD predicts that the UK will be the worst performing G7 economy in 2025. That’s scary.
However, this does not necessarily pose a problem for the stock market. Around 75% of the FTSE 100’s revenue comes from overseas. For the FTSE 250, this is approximately 57%.
The extent to which FTSE companies depend on the UK economy is debatable. That being said, I was reminded of a well-worn phrase: “The stock market is not the economy.”
Stocks to consider
For investors concerned about a crash, buying defensive stocks may be attractive.
british american tobacco I think (LSE:BATS) is worth considering.
With a forward price/earnings ratio (P/E) of less than 7 times, it is one of the cheaper stocks in the FTSE 100. Furthermore, given the addictive nature of nicotine products, demand remains roughly constant throughout the business cycle.
Indeed, the company faces potentially significant existential risks. Government regulations on tobacco products and e-cigarettes are becoming increasingly strict around the world.
Nevertheless, British American Tobacco remains confident that its non-combustible products can reach 50 million consumers by 2030. For now, traditional cigarettes remain highly profitable, but this is probably the company’s best bet for future growth.
Overall, I think its recession-proof qualities, rock-bottom valuation, and high dividend yield of 9.8% are enough to offset the risk. I think this business is likely to outperform even if the stock market crashes.
The post Will the stock market crash in May? Below is the content of the chart, which originally appeared on The Motley Fool UK.
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Charlie Carman has a position in British American Tobacco Co. The Motley Fool UK recommends British American Tobacco Co. The views expressed about the companies mentioned in this article are those of the author. As such, it may differ from our official recommendations on subscription services such as Share Advisor, Hidden Winners, and Pros. At The Motley Fool, we believe that considering diverse insights makes us better investors.
The Motley Fool UK 2024
