The Santa Claus Rally that took place in early December seems like a long, long time ago. Today, stock exchanges are flooded with a sea of ​​red, and some predict that: A US stock market crash may be just around the corner.

So what’s going on? What actions should investors like me take?

Here’s what happened

Hopes for swinging interest rate cuts in 2024 and 2025 have boosted global stock markets this year. Reductions in base rates provide economic stimulus and reduce borrowing costs, increasing business profitability.

However, more recent inflation suggests that such extreme rate cuts are not on the horizon. Such suspicions exploded after yesterday’s (December 18) meeting of the US Federal Reserve.

As expected, the central bank again reduced the reference rate to 4.25% from 4.5%. However, Fed Chairman Jerome Powell warned that “from this point onwards, we should remain cautious and expect progress on inflation“

Adding that inflation may take “another year Or two” to meet the bank’s 2% target, higher interest rates may persist much longer than expected.

What’s next?

As a result, stock markets around the world fell. In London, FTSE100 dropped to monthly lows just above 8,000 points today. Yesterday, S&P500 the US stock index fell to its lowest levels in six weeks.

Since previous increases were based on expectations of interest rate cuts, these retracements are not a surprise. Even after blurring the last 24 hours, the S&P 500 is still up 23% year to date.

Could this be the beginning of a bloodbath? Many analysts say global stocks are overvalued due to issues including China’s economic struggles, potential recent trade tariffs and signs of persistent inflation.

In this context, further declines may be imminent.

This is my plan

Correctly guessing how the stock markets will behave in the near future is a very complex task. At any given time, stock prices are influenced by a number of macroeconomic and geopolitical factors. As we have just seen, there can also be surprises that shake up asset values.

I believe a market crash is unlikely. But as I say, I can’t be sure.

Whether the short-term prospects are bad or good, my investing strategy remains the same. Market turmoil is common, but investing in stocks still provides impressive long-term returns. So reducing my shares doesn’t make much sense.

For example, the S&P 500 has delivered an average annual return of 12.7% over the past decade. It has delivered such huge gains despite issues such as the Covid-19 pandemic, rising geopolitical tensions and higher interest rates.

So at times like these I look for discounted stocks, funds and trusts that I can buy. AND iShares S&P 500 ETF (LSE:CSPX) is one I am considering buying more of after the index has plummeted.

As the name suggests, this gives me exposure to the entire S&P 500 Index, which helps me spread my risk. That said, it also has significant growth potential due to the ponderous weighting of technology stocks, including technology stocks Nvidia AND Microsoft.

With a fixed fee of 0.07%, it is one of the most profitable funds tracking the US index.

Past performance is not a reliable indicator of future returns. However, if the long-term rate of return of the iShares fund remains unchanged, today’s investment of PLN 10,000 pounds she would have done it already more than three times to £36,365 in ten years.