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The past few years, the United States S&P 500 The index worked very strongly.
For example, it has risen 84% over the past six months. Compare it with FTSE 100 On this side of the pond. During that period, it rose 42%. I consider it a good performance, but only half of that of the S&P 500.
However, S&P has recently joined the market revision in raising concerns among investors about the US and global economic outlook. It has recovered some ground, but is 14% below where I was standing in February.
Could things get even worse from here?
The market is booming, but it cannot last forever
I think the answer is yes. Despite the fall, the S&P 500 still looks expensive to me. The index price to revenue (P/E) ratio is 26.
This is well above the type of P/E ratio that I usually feel comfortable with when looking for stocks to buy for my portfolio.
From history, we know that the stock market is cyclical. They go up, come back and start the process again.
Given its valuation, the cyclical nature of the market and the high level of uncertainty regarding global trade and the US economic outlook, I think the S&P 500 could be heading towards a significant crash.
But what I don’t know (and no one does) is when.
It could be next week, but it could be next year, or maybe 10 years from now. As the past few weeks have shown us, the market can move in dramatic and often unexpected ways.
This is how I prepare
What does that mean practically for my approach as an investor?
For one thing, we don’t plan on investing in the S&P 500 index tracking fund anytime soon.
Secondly, I will continue to search for potential bargains in the form of individual stocks.
For example, I turned my eyes nvidia (NASDAQ: NVDA) For a while. That may not be surprising given the spectacular performances of the past few years.
I love the fact that Nvidia still operates in a large, large budget market with great growth opportunities.
I also really like its competitiveness. There are many unique technologies, large installed user base and chip manufacturing expertise, making it extremely rare and extremely difficult to replicate from scratch.
However, stock price gallops in recent years have been too expensive to suit my taste. Recently, Nvidia’s stocks have had a tough time and there’s a reason to understand. The rapidly changing tariff and tip export rules threaten to take a big bite from Nvidia’s sales and profits.
So I’m not ready to buy yet. But if the S&P 500 crash cuts prices well, Nvidia is on my shopping list.
