Financial expert predicts a market crash in October
The Covid pandemic over the past 18 months has continued to blow gaping holes in markets around the world. Economies are attempting to bounce back and ease their way out of the financial crisis, but some significant and lingering problems refuse to disappear. Tom Stevenson, an investment director at Fidelity International said although it is now known if a sharp correction in markets is around the corner, “the odds are clearly shorter than they were”.
He warned the “list of things to worry about has got considerably longer since the spring” – just as countries were beginning to ease lockdown restrictions brought on by the pandemic.
These mounting issues now include inflation, ever-creaking supply chains, surging energy costs, an imminent turn in the interest rate cycle, stretched profit margins and slowing earnings growth
Mr Stevenson wrote in The Daily Telegraph: “Even if it is not imminent, a correction will happen at some point.
“If you look at the performance of the S&P 500 in the three years following each of the major bear market bottoms over the past 60 years, there has been a pull-back of at least 10pc at least once.
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“We are now a year-and-a-half on from the Covid bottom and we are yet to experience that double-digit decline.
“Given the 5pc or so retreat in September, it is not unreasonable to wonder whether the inevitable correction is under way. It’s going to happen at some point.”
The financial expert said he had recently seen something that promised him holding shares for at least 20 years would have given back a return of five percent a year only twice in the past century.
He added: “In 40 of those years the average annual return over a 20-year holding period would have been 10pc or higher.
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“That really is reassuring if you are 29, but less so if you are 59 let alone 89.
“For most of us, without a lifetime of investing still stretching ahead of us, there is merit in Warren Buffett’s ‘rule number one’: don’t lose money.”
Mr Stevenson advised people to slightly raise cash holdings, and said: “Remember, you don’t have the same constraints. You can have as much cash as you like, and when that correction does come you will be glad you have it to hand.
“But remember too that the cash you do hold is guaranteed to lose money in real, inflation-adjusted terms right now.
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“Additionally, that cash is only useful if you put it to work at some point, so take the opportunity now, while your mind remains calm, to set yourself a target level at which you will get back into the market – however queasy it makes you feel.
“Do it now, because you won’t feel like it when the market has fallen 15pc.”
Secondly, he advised people to take a close look at their current portfolio and ensure the “recent winners have not grown too big”.
Mr Stevenson said those who know how much these stocks were worth in their portfolios 12 months ago should think about selling down to that level and redirect the proceeds.
Thirdly, he advised people to ensure they are “sensibly diversified” as the traditional way of doing this through bonds “may no longer work so well”.
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The expert said: “If inflation and interest rates rise, US treasuries, gilts and corporate bonds may move in the same direction as a correcting stock market. Gold, real estate, some commodities and infrastructure may hold up a lot better.
“Within the stock market look for stocks that don’t behave like bonds. Those high-flying tech stocks thrive in a low-interest-rate environment, but high dividend-paying value shares might do better if yields start to rise.”
Concluding, Mr Stevenson warned: “Finally, fix the roof while the sun is still shining. If you are investing with borrowed money, don’t.
“If you are sitting on stock market gains but also have a big mortgage, consider using your highly valued investments to pay down your still cheap borrowings. They may not stay that way for long.”