Could the stock market crash in 2024? Here’s what I’m doing!

Some are predicting a global stock market crash led by US equities. Our writer gives his verdict and explains his own approach.

| More on:
Illustration of flames over a black background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There are plenty of headlines around at the moment warning of an impending stock market crash.

Many who are forecasting a looming catastrophic event point to an over-valued US stock market as evidence. They suggest that the S&P 500, with a trailing price-to-earnings (P/E) ratio of 27.8 — compared to its historical average, since 1990, of 23.3 — is too expensive and that investors will soon take fright.

Others are closely following the actions of Warren Buffett. His investment vehicle, Berkshire Hathaway, has been switching stocks for cash. At 30 September 2024, the company was sitting on a cash pile of $320bn. That’s an increase of $168bn in 12 months. If the American billionaire’s selling up then he must think a crash is coming, so the argument goes.

Indeed, the Buffett Indicator, which measures the value of the stock market relative to the US economy as a whole — a bit like a country-wide P/E ratio — is close to its record level. At 195.6, it’s more than double its 20-year historical average of 98.9.

Cheer up!

But I’m more positive.

The S&P 500 is currently inflated by the Magnificent Seven tech giants. Excluding these, the P/E ratio of the index falls below 20.

It’s true that stock market crashes have been preceded by extended bull runs. In 1987, Black Monday occurred after the Dow Jones Industrial Average had increased 250% over the previous five years. However, since November 2019, the S&P 500’s ‘only’ up 87%.

And Warren Buffett’s hinted that he’s been selling stocks for tax reasons rather than because he’s fearing the worst. Yes, his indicator is high. But it’s been climbing for several decades now. And he’s continued to hold stocks during many new highs, suggesting he doesn’t rely very much on his eponymous measure.

Slow and steady

Nor does Berkshire Hathaway appear to be focusing on defensive sectors — like utility stocks — that investors tend to buy when a period of instability is anticipated.

Defensives include shares like National Grid (LSE:NG.). It transmits and distributes electricity and gas in the UK and US. The demand for energy is largely unaffected by economic and financial turmoil.

Coupled with an absence of competition, it has certainty over its return on capital meaning it can confidently predict an annual 6%-8% increase in its earnings per share, through to 2029. And it plans to grow its dividend in line with inflation. Of course, there are no guarantees.

But it did surprise investors in June when it announced a £7bn rights issue. And it’s carrying a large amount of debt.

However, principally due to the reliability of its earnings, it’s the sort of stock I’d buy, if I thought a crash was coming.

Keep on going

Yet I’m not fearing the worst.

Don’t get me wrong, I’m sure there’s going to be another crash at some point over the remainder of my investing lifetime. History suggests there will be. And when it comes, the doomsters will claim credit for forecasting its arrival. After all, a broken clock is right twice a day.

But I’m going to keep on doing what I’ve always done. And that’s buy the stocks of well-managed companies — with strong balance sheets — which are likely to weather periods of market turmoil over the coming years and decades.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended National Grid Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Growth Shares

The AstraZeneca share price just fell 8.4% in a day. Is it time to consider buying?

The AstraZeneca share price has fallen almost 25% since late August. Is there value on offer for investors after this…

Read more »

Investing Articles

Up 66%, is this FTSE 250 share still too cheap to ignore?

This FTSE 250 firm operates in a competitive sector but has outperformed most of the market since the start of…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Why this FTSE 100 stock could be a big winner from the UK Budget

Ken Hall has one industry-leading FTSE 100 stock under the microscope following favourable announcements in last week's Budget.

Read more »

Investing Articles

After a bumper year, is there any value left in Rolls-Royce’s share price?

Despite the sustained rise over the year, Rolls-Royce’s share price still looks very undervalued to me, with further strong earnings…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

I’d buy 1,525 HSBC shares to generate £5,720 a year in passive income

HSBC shares generate a 6.8% yield (nearly double the FTSE 100 average) and appear very undervalued against their peers, supported…

Read more »

Investing Articles

With Bunzl pausing, I think investors should take note of this winning growth stock

We may be seeing a decent opportunity to appraise Bunzl right now and to consider buying one of the FTSE…

Read more »

Bronze bull and bear figurines
Investing Articles

Will Nvidia stock keep soaring? Here’s what the experts say

Our writer takes a look at Wall Street's latest price targets for Nvidia stock, as well as the third-quarter earnings…

Read more »

Investing Articles

If I’d put £5k into this magnificent FTSE 100 stock 4 years ago, here’s what I’d have today

Mark David Hartley weighs up the prospects of a FTSE 100 stock that’s made impressive gains in the past four…

Read more »