There is growing speculation that a stock market crash could grip the market at some point in the near future.
Indeed, there is already evidence of a crash, or bear market, in some sections of the market. Analysts generally define a bear market as a 20% drop from the peak. Some shares have already printed a 20% decline, and then some, over the past couple of weeks.
Some of the market’s highest-flying growth stocks are down 70% or more from their 2021 highs in the US.
Stock market crash outlook
Analysts are warning that the combination of higher interest rates and rising inflation could combine to drive a stock market crash in 2022.
But I am not taking any notice of this forecast. Analysts have been trying to scare investors into action since the financial crisis. While there have been some bumps along the way, overall, stock markets have trended higher over the past 12 years.
This is why I am not particularly worried about warnings of an imminent crash. It is impossible to predict what will happen to the stock market over the next year or so with any accuracy.
Throughout longer periods, it does become easier to analyse market potential. Over the long run, equity prices should track underlying fundamental performance. Therefore, if the global economy expands over the next decade, equity prices should match this growth.
As such, I am focusing on the long-term outlook for the global economy, rather than short-term market forecasts. These are almost always wrong.
Top-quality businesses
Instead of trying to time the market and predict a stock market crash, I am focusing on acquiring high-quality shares. Companies that will be able to capitalise on global economic growth, thanks to their competitive advantages and international footprint.
There are a couple of businesses that really stand out. Drinks giant Diageo has a deep international footprint and portfolio of globally recognised brands.
Meanwhile, the global catering group Compass provides an essential service. It helps other businesses cater for staff and events. As long as humans continue to need food, I think demand for this firm’s services will persist.
And then there is distributor Bunzl. Distribution is a low margin business, where are economies of scale are required for success. Bunzl has substantial economies of scale.
Distributing items such as takeaway cutlery and cleaning equipment, the company provides an essential service for many other businesses. No matter what the future holds for the stock market, I think the demand for this group’s offering will continue to expand.
Continue to prosper
I have picked out these companies for their qualities but, unfortunately, they are not immune to general business risks. Rising inflation pressures, competitive forces, and additional regulations are all factors that could have an impact on their growth rates. Another challenge they could face is rising interest rates. Rising rates may increase their cost of debt.
Despite these headwinds, I would acquire all three of these organisations for my portfolio. I think they should continue to prosper even if there is a stock market crash in the next week. With robust operating models, I believe these companies have the potential to pull through whatever the world throws at them.
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Rupert Hargreaves owns Diageo. The Motley Fool UK has recommended Bunzl, Compass Group, and Diageo. 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.
