This data may have me marking my calendar for a stock market crash this month
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Despite the geopolitical uncertainty around the world right now, the UK stock market remains incredibly strong. However, this does not mean that a stock market crash is not a possibility. In fact, based on interesting comparisons with historical wrecks, there is an argument to be made that one may be…
A warning sign
Historical data shows that recessions often hit the economy and affect the markets about 12-18 months after interest rates have reached their peak.
This delay is known as ‘lag effect‘ of monetary policy, as it takes time for higher borrowing costs to dampen things like consumer spending and business investment. For example, following the 2004-2006 boom in the US, the 2008 recession began about 18 months later. In 2000, it took almost a year after the last upswing for the US economy to enter a recession.
UK interest rates increased in August 2024 to 5.25%. So right now, we’re hitting the 18 month mark. This could mean that we are about to enter a recession. GDP data for this quarter will not be known until early summer. But stocks tend to anticipate any decline, which makes the next few weeks or so very interesting to see what happens.
Of course, past performance does not indicate future returns. Just because the lag effect was seen during previous market shocks doesn’t mean it will be the same this time. But the last two quarters of GDP growth have shown an increase of 0.1%. It shows that the UK economy is currently weak.
Health check
No one can predict exactly when a market crash will come. But investors can look into buying more defensive stocks if they believe the risk of a crash has increased. One example to consider is this Basic Health Structures (LSE:PHP).
The company owns and leases primary health care buildings, such as doctor’s surgeries and medical centers. As a result, performance is not affected by the effect of the stock market crash. Even if people fear that the UK has fallen too far, they will still book and go to medical facilities. Therefore, the tenants inside the buildings must see the need to remain intact, which allows them to continue paying rent or leasing the site.
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Most employers are linked to the NHS or public health care scheme, which acts as a secure source of income. Yes, the government may cut health spending. But I believe this would be an unpopular choice during a recession!
The share price has risen 20% in the past year. Even though it is highly profitable, the main appeal of this defensive stock is its dividend yield. At 6.56%, the company’s income can be very valuable to investors looking to generate yield when other areas of their portfolio may be declining in value.
Business is not without risks. It operates in a niche, which means that if we experience a boom in warehouses or other types of commercial property, it will perform below its competitors. Overall though, I think it’s a defensive pick worth considering right now.
