I wish the stock market crash would hurry up and get on with it. People have been predicting one for weeks, months, years – and it still hasn’t happened. How long can we be expected to wait?
I’m joking, of course. There’s always someone somewhere warning that share prices are set to crash and burn. Right now there’s an army of them, including Bank of England Governor Andrew Bailey. It’s not hard to see why.
The AI bubble fear
Markets keep hitting record highs even as the global economy slows. Gold, silver, and Bitcoin are also flying, which makes many nervous. Some of the bubble chatter is downright apocalyptic. October is often volatile and this one’s shaping up no differently.
The latest frenzy is powered by artificial intelligence. Ever since OpenAI released ChatGPT in 2022, excitement over AI has pushed US indexes like the S&P 500 and Nasdaq to the stratosphere. Tech giants such as Apple, Microsoft, and Nvidia have surged, while the rest of the economy struggles to keep up. It reminds many of the late-1990s dot-com boom, with ordinary investors desperate not to miss out.
When share prices race ahead of profits, valuations can stretch too far. There’s also the rise of circular investments, with big tech firms ploughing cash into each other’s ventures. It could end badly.
Some say we’re heading for a ‘melt-up’ before the fall, as markets enjoy a pre-meltdown last hurrah. Others think central banks will cut rates and stretch the rally further. The truth? Nobody knows.
Ready for opportunity
I wouldn’t welcome a crash, as it would dent the value of my Self-Invested Personal Pension (SIPP). But I’m still 10 years from retirement, which gives it plenty of time to recover. So part of me would welcome lower prices, because I’ve got cash sitting idle in my SIPP. I’d love to grab quality companies sold off for no fault of their own, simply because investors were panicking.
One of my top targets is Phoenix Group Holdings (LSE: PHNX). I added it to my SIPP 18 months ago and I’m sitting on a 45% total return, with roughly 25% from share-price growth and the rest from dividends. The stock yields about 8% and trades on a price-to-earnings ratio of 14.7. It looks good value to me. In a correction, the shares might take a beating, but that could knock the P/E even lower and bump the yield higher. If that happens, I’d find it almost impossible to resist.
Phoenix is particularly vulnerable because it has around £280bn invested, to cover its insurance liabilities. It would be caught up in any market volatility. The big risk is that an extended downturn could hit profits and cash flow, and force a dividend cut, which would further damage the share price. I still think Phoenix shares are worth considering today, and likely even more so after a crash.
Playing the long game
There are other shares I’d love to buy in a correction. The goal is to grab a low valuation and a fatter yield while others are fearful. But these things just can’t be timed. So I’ll drip my cash into the market over the next few months, taking advantage of any dip or panic we get. Either way, I’ll invest and hold for the long term, whatever the market does.
