It’s hard to imagine we’re heading for a stock market crash, with the FTSE 100 up 1.36% today to 8,386.54 at time of writing. Yet an awful lot of people think we’ll get one in August.
Most of the anxiety focuses on the US, rather than the UK. In fact, following our general election, global investors are relatively positive about our prospects. Which makes a change!
Yet if the doom mongers are right and the S&P 500 does crash, UK shares are unlikely to escape unscathed.
Will the FTSE 100 fall?
So what’s the worry? Wall Street has been flying for the past couple of years. The S&P 500 is up more than 49% since it bottomed out in 14 October 2022, while the tech-heavy Nasdaq is up 66%.
They’ve climbed 18.47% and 19.53% respectively over 12 months but have fallen over the last week, as investors fear valuations are stretched.
Economist Harry Dent warned Fox Business that the market is currently in the “bubble of all bubbles”. Paul Dietrich, chief investment strategist at US firm B. Riley, reckons shares are grossly overvalued and the market could crash by as much as 48%.
The Magnificent Seven mega-cap US tech stocks have taken us all into uncharted territory. They’re huge, with market caps worth trillions of dollars, and expensive. Yet at the same time, the opportunity is huge and global. Nobody can say what comes next.
Over five years, AI chip maker Nvidia (NASDAQ:NVDA) is up a scarcely believable 2,473.95%. That would have turned a £10,000 investment into a frankly staggering £257,395.
The Nvidia share price still up 121.98% over the last 12 months. Yet it’s gone into reverse, falling 12.86% over the past five days. There’s an element of ‘AI stock fatigue’, and investors now want to see clear evidence that the breakthrough tech is going to boost the bottom line.
Time to buy, not sell
Adding to the sense of unease, Nvidia looks expensive trading at more than 60 times earnings. Investors are also wary as it faces tougher competition from Google’s Axion Processor and Intel’s Gaudi 3 AI accelerator.
US tech stocks are preparing to deliver their latest earnings, with Microsoft, Amazon, Apple and Meta all reporting this week. If they beat expectations everybody will be happy. But if they don’t, watch out. We will have to wait until 28 August to see what Nvidia has been up to.
The summer is often bumpy for the stock market, and this year there’s a high stakes US presidential election at the end of it. Throw in China and the Middle East, not to mention Europe, and it isn’t hard to see why investors are nervous. After a good run on tech, many will be tempted to bank profits.
Personally, I’m going to spend August scouring the FTSE 100, looking for bargains to add to my portfolio. There are some great value UK stocks out there, and if the market does crash, or just dips a little, they’ll get even cheaper. I think August will be a brilliant time to buy shares. I’m certainly not selling.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. 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.
