Thoughts of a stock market crash are relatively rare at this time of year. The ‘Santa rally’ usually pushes stocks up over the festive period, rather than down. The type of news that might cause a mad panic in the markets is rarer during the last months of the year. ‘Tis not the season, you might say.
Alas, we live in interesting times. The speculation over a bubble in US tech grows and grows. We also have one of the latest Autumn Budgets in living memory, with rumours of painful tax rises doing the rounds in the newspapers. With less than 40 sleeps left to the big day, we might even see a rare stock market crash before Christmas.
Optimism
One reason to be optimistic is that the most dangerous months for crashes, September and October, have passed. The 1929 crash happened in October, as did 1987’s ‘Black Monday’, to cite two examples.
There’s the boost of a possible Santa rally to think about too. History tells us the week leading up to Christmas is often a boost to the markets.
The markets are perhaps already pricing in any problems arising from the Autumn Budget. This is one of the few advantages of this modern-day phenomenon of having every possible tweak to taxes do the rounds in the press in the months leading up to it.
The AI bubble is the biggest threat, in my view, but even that is concentrated in a handful of US tech stocks. It might not even come at all, but if it does, I have plenty of exposure to strong businesses outside of tech that will be far from the epicentre of any disaster.
Safety
One stock that I believe will weather any short-term turbulence is British American Tobacco (LSE: BATS). Its sales are still strong, and the defensive nature of its products means they often do well during recessions.
Another benefit to this kind of dividend stock is the percentage yield I get for owning it. The dividend is reliable too, paid quarterly. The current dividend yield of 5.9% will keep rising too, according to current forecasts.
While dividends are never guaranteed, they are often paid out even if the share price isn’t surging higher. British American has paid a dividend for decades. The firm has increased its dividend for each of the last 28 years.
The declining nature of tobacco is a risk for the stock. This could mean my stake in the company lowers in value in the years ahead, despite any dividends I might receive.
That said, the share price being up 41% in the last 12 months shows there’s some fight in the old dog yet. And if a stock market crash comes before Christmas or even after? I think this will be one of the safer parts of my portfolio.
