Over the last two weeks, volatility in UK and US equities has increased. After February 15th FTSE 100 Today it fell by more than 4% before returning to 6,660 points.Meanwhile, concerns over the U.S. tech bubble knocked out 200 points. S & P 500 Since the highest record on February 16th. What’s wrong? And should I be careful about the fear of an upcoming stock market crash?
Stock Market Crash: I’m Seeing These Five Warning Lights
1. UK and US bond yields
Since the beginning of 2021, UK and US government bond prices have fallen, pushing up bond yields. This is worrisome for equity investors, as rising bond yields indicate rising inflation and rising borrowing costs. Today, the benchmark 10-year Treasury yield peaked at 1.624%, the highest level in a year. Similarly, the 10-year gilt yield was 0.783%, the highest since the market collapsed in March 2020. Therefore, UK investors worried about a stock market crash need to pay attention to bond yields. Further declines in bond prices can bring bad news to stock prices.
2. UK and US inflation
Bond prices are falling and yields are rising as investors worry about inflation. If rising consumer prices push up inflation too much, the Federal Reserve Board of Governors and the Bank of England may need to raise interest rates. However, if the inflation surge above the 2% target turns out to be temporary, interest rates need to remain stable. Again, investors worried about the risk of a stock market crash need to monitor inflation levels like hawks.
3. Oil price
As the world economy experiences a post-Covid-19 recovery, so will oil demand. Yesterday, the OPEC cartel and its allies voted to freeze oil production at current levels.Unchanging oil supply pushed up prices Brent crude Today it is up 3% to $ 68.74 a barrel. In addition, Brent crude oil prices have risen by more than a third (37%) in 12 months. Obviously, rising oil prices have a direct impact on inflation, so I regularly monitor the price of “black gold.”Meanwhile, investors looking to profit from rising oil prices can check out the very generous cash dividends offered by UK super majors. Royal Dutch shell And BP..
4. GDP growth rate
Economists are broadly optimistic that economic growth will skyrocket around the world as the Covid-19 threat recedes. Beijing, for example, expects China’s economy to grow by more than 6% in 2021. With US stimulus back on the horizon, the US economy could also rejuvenate. However, accelerating economic growth can lead to higher wage increases, impact consumer prices and boost inflation. Therefore, I will keep an eye on the growth of GDP (gross domestic product) in the United States, the United Kingdom, and other major powers, worried about the stock market crash.
5. Warren Buffett is worried about bonds
Omaha’s billionaire Oracle Warren Buffett seems more worried about the bond bubble than the stock market crash. Buffett recently warned, “Recently, bonds are not the place to exist.” However, higher interest rates reduce the present value of future corporate cash flow. In this scenario, the worst hit could be the highly valued US tech stock. Of course, I agree with “Uncle Warren”. Therefore, I prefer to pay for cheap stocks in the UK. Huge cash dividend!! Indeed, I think the UK’s FTSE 100 offers value investors like me the best deals in a few years. So now I keep buying UK stocks!
Cliff Darcy There are no positions in any of the listed shares. The Motley Fool UK does not have a position in any of the listed shares. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by examining different insights, Better investors than us.
Stock Market Crash: While buying cheap stocks, I see these 5 warning signs!
https://www.fool.co.uk/investing/2021/03/06/stock-market-crash-ill-watch-these-5-warning-signs-while-buying-cheap-shares/ Stock Market Crash: While buying cheap stocks, I see these 5 warning signs!