November is historically the strongest month for global shares. Yet fears of a stock market crash have jumped in the first several days, meaning share exchanges across the world are a sea of red.
So I asked ChatGPT a simple question: “Is the stock market about to crash?” Here’s what it said.
Danger signs
After giving me the cookie-cutter (but accurate) reply that “no one knows for sure“, the AI model fleshed things out a bit for me. It said that “there are credible warning signs that the stock market faces elevated risk of a significant correction (say 10% to 30%) rather than a guaranteed crash“.
ChatGPT gave me three reasons why share prices could heavily retrace their steps:
- Elevated valuations. It said that “some metrics for US stocks are among the highest historically, which typically correlates with lower forward returns and higher risk of drawdowns“.
- Rising macroeconomic risks. The AI commented that the chance of a global recession is “still meaningful“, citing corporate dependence on supportive central bank policy, along with risks created by geopolitical uncertainty, high government debts, and trade tariff shocks.
- An AI-related shock. Disappointing growth or cost news for AI companies could cause investors “to reassess the value of many firms whose valuation is built on future AI profits“, ChatGPT said.
There’s nothing there that many of us weren’t already aware of. Still, ChatGPT’s list still nicely covers the main factors spooking markets today, and which investors need to pay close attention to.
Preparing for the worst
Only time will tell whether the stock market experiences a crash or a painful correction in the near term. Neither man nor machine have the foresight to know for certain.
That said, it’s fair to say that a heavy market reversal will happen at some point. Economic, political, and social crises are inevitable, and history shows that share prices can collapse during such events. According to Schroders, stock market falls of 20% or more tend to happen every six years.
So, it’s a good idea to have a well-diversified portfolio, and one that contains low-priced companies in defensive sectors, to weather any market crashes. Coca-Cola HBC (LSE:CCH) is a FTSE 100 share that could be considered for such a portfolio.
The drinks bottler operates in the highly stable food and drinks sector. Not only that, but the company supplies the world’s most popular soft drink and other in-demand brands like Sprite and Fanta. This supports volumes even during downturns, and often allows Coca-Cola to raise prices even when consumers are feeling the pinch, offsetting cost pressures and growing earnings.
On top of this, Coca-Cola HBC shares are cheap from an historical perspective. They trade on a forward price-to-earnings (P/E) ratio of 15.2 times, below the five-year average of 20.1 times. A low valuation like this could protect the stock from a heavy fall if broader markets sell off.
