A global stock market crash is coming, the only question being when. Alas, I cannot tell you exactly when share prices will plunge. But I’ve rarely been so worried in 40 years of investing. Here’s why.
Market meltdowns
Newbie investors since 2010 have never encountered a full-on market collapse. When global stock markets crash, the US S&P 500 index and the tech-heavy Nasdaq Composite usually lead the way.
These are my five biggest market crashes, when the S&P 500 fell by 25% or more:
|
Start |
End |
Change |
Months to recover |
Months to recover (real) |
|
August 1987 |
December 1987 |
-34% |
20 |
49 |
|
March 2000 |
October 2002 |
-49% |
56 |
148 |
|
October 2007 |
March 2009 |
-57% |
49 |
55 |
|
February 2020 |
March 2020 |
-34% |
5 |
5 |
|
January 2022 |
October 2022 |
-25% |
15 |
20 |
Since 2010, the US stock market has taken, at most, 15 months to recover from a previous crash, or 20 months after adjusting for inflation (rising consumer prices). Yet the recovery from the global financial crisis of 2007-09 took 56 months (148 months in real terms). That’s over 12 years, and that outcome left deep scars on me and other veterans.
Currently, I feel the same anxiety as when the dotcom bubble peaked in 1999-2000. However, that was over 25 years ago and, as American satirist Mark Twain once quipped, “The older I get, the more clearly I remember things that never happened”.
Even so, I feel apprehensive about returns from US stocks for the next few years. As my late nana once remarked, “Greed turns folks into fools” — and rarely have investors been so greedy and so fearless. SpaceX, anyone?
Crash-test dummy?
Bad news: US stocks have been more highly valued only once, just before the dotcom bubble burst in 2000. When I look at the charts of the S&P 500 from 1995 to 2000 and 2021 to now, they look uncannily similar.
Good news: 2003, 2009, and 2020 were three of my best years for investing. Imagine buying the US market in March 2009 to then see the S&P 500 soar from 666 points to 7,600 in 17 years. Happily, ‘crash buying’ has generated life-changing returns for investors.
Crash course
This week, my wife and I agreed to reduce our family portfolio’s exposure to expensive US stocks. We will switch into low-risk money-market funds and cheap FTSE 100 shares. Meanwhile, here’s one US value stock we won’t sell in the next downturn.
In mid-2022, we bought into Target Corp (NYSE: TGT) stock after a big share slump that May. After currency conversion, we paid £127.55 a share. As I write, the shares stand at $135.45 (£101.11). Hence, we are losing, but largely due to the pound strengthening against the US dollar.
At its 52-week low, Target stock traded at $83.44, but has since leapt 62.3% from this bottom. Yet, I don’t think the shares are not priced for perfection, unlike so many US large-cap stocks. They trade on 17.9 times trailing earnings, producing an earnings yield of 5.6%. Thus, their generous dividend yield of 3.4% a year is covered over 1.6 times by historic earnings.
