2022 has been an unnerving time for stock investors. The FTSE 100 for instance is down 4% since 1 January and the S&P 500 has dropped by a fifth. I think a fresh market crash is just around the corner, given the newsflow of recent days.
I’m not selling everything in sight, though. I’m taking a different path to safeguard my wealth.
A darkening outlook
But that’s not to say I’m not getting prepared for a fresh stock market crash. In fact, comments from the International Monetary Fund (IMF) this week paint a bleak picture that could push financial markets lower again.
The IMF says the global economic outlook “has darkened significantly” and that “it is going to be a tough 2022 and possibly an even tougher 2023, with increased risk of recession”.
To cap things off, the IMF also said it will cut global growth estimates for this year and next later in July. This follows the downgrades it made in April.
4 reasons for a market crash
There are several strong reasons to expect a fresh market crash. These include:
- Rampant inflation. Prices are soaring at alarming levels across the globe. Latest data from the US showed consumer price inflation increase 9.1% in June, beating broker forecasts again.
- Central bank panic. Policymakers are becoming more extreme in their battle to tame inflation in a further threat to economic growth. On Wednesday, Canada’s central bank hiked interest rates by a full percentage point.
- Enduring war in Ukraine. This would keep food and energy prices higher for longer. It also raises the prospect that Russia will cut natural gas supplies to Europe as geopolitical tensions increase.
- Soaring Covid-19 cases. Infection rates are rising in key regions and prompting fresh lockdowns in China. The emergence of new variants and the approach of winter weather could prompt a new severe wave of the pandemic later in 2022.
I’m buying like Buffett!
Based on all of the above, we could argue that a stock market crash looks more likely than unlikely. But as a UK share investor, I’m not nervous and plan to stand firm despite the rising threats to economic growth.
The worst mistake investors can make is to follow the herd. One of billionaire invest Warren Buffett’s most famous pieces of advice is to “be fearful when others are greedy and be greedy when others are fearful.”
He became one of the world’s wealthiest people by doing the opposite of the broader market so he knows what he’s talking about!
So today, I continue to buy UK shares for my portfolio. For one, there are plenty of top stocks that have been heavily sold during recent market volatility. Indeed, many companies have been sold despite the fact they continue to report strong trading.
What’s more, by buying low today, I believe I’ll make a big capital gain when the new bull market comes around if the shares I buy rise in price. For this reason I don’t fear stock market crash. I’ll treat any fresh correction as another dip-buying opportunity.
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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.