Investing in the UK, I’m mostly concerned about a FTSE 100 stock market crash. But ChatGPT highlighted analysts pointing out how closely connected the UK and US stock markets are.
If the US market falters, I can’t see UK shares avoiding a dip.
What does my AI assistant make of expert views? Analysts at JPMorgan recently suggested the S&P 500 could reach 7,000 points by early 2026. So they don’t see any need to panic over an imminent crash, it seems. But the fears remain in the background.
We have no real hope of predicting when the stock market might crash. But I think there are two things we can do. We can think about what the trigger might be, and decide what to do if and when it happens.
The key event?
So, it seems any major FTSE fall would most likely be kicked off by a drop in US markets. And with big S&P 500 and Nasdaq gains in 2025 coming mostly from AI-based stocks, those seem like the most probable triggers.
Which one might start it all off? My eyes are firmly on Tesla (NASDAQ: TSLA) as a possible future culprit.
On 22 October, Tesla posted a 12% rise in third-quarter revenue to $28.1bn after a record quarter’s sales. That was good news, following periods of slowing electric vehicle demand. But with costs climbing and margins being squeezed, the company saw earnings per share fall by a big 31% from the same quarter a year ago.
Worth how much?
This is all short term though, and in many ways I see Tesla as an exciting investment prospect for the long term. But there’s one hurdle — valuation. The stock is way out in front of the Magnificent 7, with a forecast price-to-earnings (P/E) ratio of 365!
That’s based on more than cars, for sure. Much as the way Amazon‘s valuation way back in 1999 was based on more than books. And while I see a good chance of Tesla becoming the new generation’s Amazon, it’s the one I’ll be most concerned about if I see a wobble.
What to do
Asking AI models about when an AI bubble might burst is a bit of fun. But long-term investors should be far more concerned about how to deal with the possibility.
At the moment, billionaire Warren Buffett doesn’t see much in the way of value purchases. And with the S&P 500 on a cyclically-adjusted P/E ratio (CAPE) of close to 40, that’s understandable. The long-term level is around 17. The $340bn he has in cash at Berkshire Hathaway is probably worth holding onto right now.
But with significantly less than that to invest, my crash-aware strategy remains the same. The P/E of the FTSE 100 is around 19 to 20 — higher than average, but not by much. And I see plenty of UK stocks still on attractive valuations.
So, stay calm and keep putting cash aside every month. And buy shares that I rate as good value with it. No panic. Situation normal.
