The FTSE 100 index is at pre-pandemic levels now. As I write this Tuesday afternoon, it is above 7,200. And it has stayed north of this level for the fourth consecutive session. In this context, it might sound counterintuitive that I am talking about a stock market crash.
Why a stock market crash could happen
But there is good reason for that. While we are undeniably in a vastly improved state from last year, risks to the global economy are mounting. Yesterday, China reported lacklustre growth in the third quarter of 2021. It is the second largest economy in the world and big business for more than one FTSE 100 company, so it is not one to be taken lightly. Recently, Goldman Sachs reduced forecasts for the US economy as well. It is still strong, just not quite as strong as earlier anticipated. Growth in the UK too, is not quite picking up as hoped.
It is possible that growth has just been delayed. But at the same time, policy stimulus is being withdrawn, which could slow it further. And inflation is rising, which is squeezing FTSE 100 companies’ profits. So, I think we may not be far away from investor bearishness if any of these risks suddenly appear bigger. And that is why I am preparing for a stock market crash, just in case it happens.
Buy FTSE 100 stocks on dips
Note that here I am not talking about a sharp economic slowdown like we saw when the pandemic started. That would call for a whole different article. This is about a market crash in reaction to risky developments. For instance, consider the near collapse of China’s Evergrande recently, which led to sharp market movements. Other such events could happen as well.
As always, I think a dip in the stock markets is an opportunity for me to buy. This belief has been strengthened since the market crash of March 2020. The stocks I bought then have held me in good stead. In fact, it would be a good idea for me to load up on some of my existing holdings.
2 FTSE 100 stocks to buy
One of these is AstraZeneca, whose long-term share price chart is encouraging. It is one for my long-term portfolio, where I look for capital gains over time. It is financially healthy, its cancer treatments in particular are routinely well-received and it is expanding its remit too. It is a pricey stock with a 42 times price-to-earnings ratio, but then it has always been expensive. I just see it as the premium that investors as ready to pay for shares of a dependable company.
JD Sports Fashion is another FTSE 100 stock that defies gravity. Athleisure is a fast growing market and the company appears to be quickly establishing its position. Its organic growth has been strong and it is making acquisitions as well. Its share price does not seem to fall too much or for too long. As a result it too is somewhat pricey, with an earnings ratio of around 25 times, though nowhere near AstraZeneca. I would buy more of its stock if it were to plunge too.
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Manika Premsingh owns shares of AstraZeneca and JD Sports Fashion. 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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