This data might make me mark my calendar for a stock market crash this month

Despite the geopolitical uncertainty around the world right now, the UK stock market has remained incredibly resilient. However, this doesn’t mean that a stock market crash isn’t a possibility. In fact, based on an interesting comparison to historical crashes, there’s an argument to be made that one could be around the corner…

A warning sign

Historical data indicate that recessions frequently hit the economy and impact markets roughlyÂ 12-18 months after interest rates reach their peak.Â

This delay is known as the ‘lag effect‘ of monetary policy, as it takes time for higher borrowing costs to slow things like consumer spending and corporate investment. For example, following the 2004-2006 rate hikes in the US, the 2008 recession began roughly 18 months later. In 2000, it took about one year after the final hike for the US economy to enter a downturn.

UK interest rates peaked in August 2024 at 5.25%. So right now, we’re hitting the 18-month mark. This could mean that we’re about to enter a recession. GDP data for this quarter won’t be known until early summer. But stocks tend to anticipate any downturn, which makes the next few weeks or so very interesting to see what happens.

Of course, past performance doesn’t indicate future returns. Just because the lag effect has been observed during previous market wobbles doesn’t mean this time will be the same. But the past two quarters of GDP growth have shown increases of just 0.1%. It shows the UK economy is weak right now.

Health checks

No one can perfectly predict when a market crash is coming. But investors can look to pivot towards buying more defensive stocks if they believe the risk of a crash has increased. One example to consider is Primary Health Properties (LSE:PHP).

The company owns and leases out primary healthcare buildings, such as GP surgeries and medical centres. As a result, the operations are broadly unaffected by the outcome of a stock market crash. Even if people got spooked that the UK went into a recession, they’d still book and attend medical appointments. Therefore, tenants within the properties should see demand stay the same, allowing them to keep paying rent or leasing the site.

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Most tenants are linked to the NHS or public healthcare system, which serves as a safer source of revenue. Of course, the government may cut back on healthcare spending. But I believe this would be an unpopular choice to make during an economic downturn!

The share price is up 20% over the past year. Even with the capital gains, a key appeal of this defensive stock is its dividend yield. At 6.56%, the company’s income could be very valuable to investors looking to generate yield when other areas of their portfolio might be falling in value.

The business isn’t without risks. It does operate in a niche area, meaning that if we get a boom in logistics warehouses or another form of commercial property, it will underperform its competitors. Yet overall, I think it’s a defensive pick to consider right now.

The post This data might make me mark my calendar for a stock market crash this month appeared first on The Motley Fool UK.

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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties Plc. 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.