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A growing number of stock market commentators appear to be concerned about a recent decline. They don’t have to look far for potential catalysts.
I mean, here are just a few things that could push the stock market over the edge in the near future:
- Further rate increases by central banks, resulting in the so-called “hard landing” (US recession)
- An acceleration of deglobalization
- A nuclear escalation in the wars in Ukraine and/or the Middle East
- An invasion of Taiwan by China
- The growing global debt
- New downgrades of the US government’s long-term credit rating
These are just off the top of my head. Surely there are more. And the list obviously does not include “black swan” events that few predict.
That’s an incredibly scary backdrop! I’m not surprised that some are worried.
Who warns?
One person sounding the alarm lately is John Hussman, the economist, fund manager and historian of the American bubble.
On October 13 he warned that the S&P 500 could fall up to 63%. Since the commonly accepted definition of a collapse is a drop of 20% or more, that would be a tremendous collapse.
Hussman cites high valuations and weak market breadth as reasons why this could happen. And he did mention the stock market crashes of 2000 and 2008, so it’s been going on for a while.
However, I should note that he also warned of previous impending failures that did not occur.
Putting things in perspective
Here is a list of the major market declines that will undoubtedly did happened during the last century:
- Wall Street Crash of 1929
- Black Monday accident in 1987
- 1999-2000 dotcom bubble
- 2008 financial crisis
- Covid accident in 2020
Two things immediately catch my attention here. One is that, while large accidents clearly occur, they remain relatively rare.
In fact, if history is anything to go by, I’ll probably only experience a handful of major declines over a multi-decade investing journey. I find that perspective reassuring.
The second notable thing is that the market has always recovered from previous declines. That doesn’t mean it automatically will be forever, but history shows how resilient it has been.
Few investors are poorer today after investing during previous market crises. I don’t expect that to change.
As I am already prepared
In my experience, wondering if the stock market is going to crash is a waste of time. No one knows for sure and I would be very skeptical of anyone who says yes.
But that does not mean that you continue to blindly invest money in shares of any company. Ratings do matter.
That’s why I keep a shopping list of stocks I’d like to own more of if their lofty valuations dropped enough. Here are three of them, as things stand.
Stock | P/E Ratio | Business |
Games workshop | 24 | Tabletop wargame specialist; manufacturer of warhammer 40,000 |
Intuitive Surgical | 62 | World leader in robotic-assisted surgery |
NVIDIA | 99 | Designs high-end graphics processing units (GPUs). |
If the market crashes in 2024, I’ll stockpile them to begin with.
Meanwhile, there are literally dozens of blue-chip British shares to buy today that certainly aren’t overvalued. I’d rather spend my time finding them than worry about an impending stock market crash that may not even happen.