The global stock market is highly volatile and right now a crash can’t be ruled out. I’m not panicking, as history shows that share prices always recover after periods of bumpiness. In fact, being prepared for a market correction can lead to enormous profits.
First, let’s look at why equities could plunge in the coming days or weeks. Then I’ll explain how I plan to capitalise on any stock market plunge.
Share prices can crash for a wide variety of reasons. In the 21st century alone, we’ve seen markets collapse because of slumping internet stocks, a banking sector meltdown, and a global pandemic.
Any of these shocks could cause stock markets to slump once again. However, in my view the three biggest dangers to equity prices today are:
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A prolonged conflict in the Middle East, supercharging oil prices, which damages economic growth and causes central banks to hike interest rates.
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Growing concern over artificial intelligence (AI), including runaway investment on AI by tech stocks, massive disruption to software providers, and soaring joblessness that smashes consumer spending.
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Fears of escalating government debt levels in the US and Europe, which may worsen if interest rates rise.
With many stock valuations still sky high, the chances of a market meltdown are even greater today given these risks. The S&P 500, for instance, remains just below January’s record highs around 7,002 points, even after recent price volatility.
As I say, I don’t think now is the time to panic. The long-term wealth-building power of the stock market is as strong today as it ever was. Don’t forget, the S&P 500 has overcome many challenges since 1957 to hit those peaks of early 2026. I expect it to reach new highs sooner or later.
That doesn’t mean investors shouldn’t get themselves prepared, though. Despite the risks I’ve described, I don’t believe that a stock market crash is inevitable in the near future. But I am building a large stack of cash to help me buy quality stocks on the cheap if prices do plunge. This could supercharge my returns when the market does eventually recover.
Coca-Cola Europacific Partners (LSE:CCEP) is one stock I’ll be looking to buy on the cheap. Its forward price-to-earnings (P/E) ratio is 19.3 times, well above the FTSE 100 average of 13-14. I reckon this will topple in the event of a market slump.
This FTSE-listed company bottles the world’s most popular drinks like Coke, Fanta, and Sprite. Even if economic conditions worsen, shoppers should still keep buying them in huge volumes. As we’ve seen, the business can even afford to hike prices in tough times without sales dropping, helping it keep earnings moving.
