An increasing number of stock market commentators seem to be worried about a crash recently. They don’t have to look far for potential catalysts.
I mean, here are just a few things that could tip the stock market over the edge in the near future:
- Further rate increases by central banks, resulting in a so-called “hard landing” (US recession)
- An acceleration of deglobalisation
- A nuclear escalation in the wars in Ukraine and/or the Middle East
- An invasion of Taiwan by China
- Soaring global debt
- Further downgrades of the US government’s long-term credit rating
These are just off the top of my head. There are surely more. And the list obviously doesn’t include “black swan” events that few are predicting.
That’s an incredibly scary backdrop! I’m not surprised some are worried.
Who is warning?
One person pounding the alarm lately is John Hussman, the American economist, fund manager, and bubble historian.
On 13 October, he warned that the S&P 500 could drop by as much as 63%. Given that the commonly accepted definition of a crash is a decline of 20% or more, that would be one hell of a meltdown.
Hussman cites high valuations and weak market breadth as the reasons why this could happen. And he did call the 2000 and 2008 stock market crashes, so he’s been about a while.
However, I’d note that he also warned about previous imminent crashes that didn’t happen.
Putting things in perspective
Here’s a list of the major market crashes that most certainly did happen over the last century:
- Wall Street crash of 1929
- Black Monday crash in 1987
- Dot-com bubble of 1999-2000
- Financial crisis of 2008
- Covid crash in 2020
Two things immediately stick out to me here. One is that while big crashes obviously occur, they are still relatively rare.
In fact, if history is anything to go by, I’m probably only going to experience a handful of major crashes throughout a multi-decade investing journey. I find that perspective reassuring.
The second notable thing is that the market has always bounced back from previous crashes. That doesn’t mean it automatically will forever, but history shows how resilient it has been.
Few investors are poorer today after investing during previous market crashes. I don’t expect that to change.
How I’m already prepared
In my experience, wondering whether the stock market is going to crash is a waste of time. Nobody knows for sure, and I’d be very skeptical of anyone who says they do.
But that doesn’t mean I blindly keep putting money into the shares of any business. Valuations do matter.
That’s why I keep a shopping list of stocks that I’d like to own more of if their high valuations came down enough. Here are three of them, as things stand.
| Stock | P/E ratio | Business |
| Games Workshop | 24 | Tabletop wargames specialist; maker of Warhammer 40,000 |
| Intuitive Surgical | 62 | World leader in robot-assisted surgery |
| Nvidia | 99 | Designs high-end graphics processing units (GPUs) |
If the market crashes in 2024, I’ll be loading up on those, for a start.
Meanwhile, there are literally dozens of top-notch UK stocks to buy today that certainly aren’t overvalued. I’d rather spend my time finding those than worrying about an imminent stock market crash that might not even happen.
