Worried about a potential stock market crash? I wouldn’t blame you. On Friday (19 July), I spotted headlines describing markets as a “bloodbath”, with more than $1trn wiped off Wall Street valuations at the open. I was sunning myself on a beach at the time and checked my portfolio expecting mayhem.
Japan’s Nikkei 225 had dropped more than 4% and Taiwan’s Taiex index had shed 6.5%. But the Nasdaq Composite closed just 1.25% down while the S&P 500 fell 0.58%. The FTSE 100 actually rose 0.27%. As bloodbaths go, this was pretty PG-rated. I adjusted my towel and returned to topping up my tan.
Why investors should ignore volatility
It doesn’t look like a massive crash has hit us. Investors should always treat dramatic headlines with caution. What matters isn’t what markets do in a day, but over years and decades. History shows that over the longer run shares work investors’ money harder than almost any other asset class, but with plenty of short-term volatility along the way.
Of course, there are reasons to be cautious right now. The US conflict with Iran continues to unsettle markets. Investors are questioning whether the artificial intelligence boom can justify the hundreds of billions being poured into infrastructure. Even if AI fulfils its promise, there will be losers as well as winners.
Yet markets never rise in a straight line. US technology stocks have delivered exceptional returns over the last dozen years. So far, patient investors have treated short-term setbacks as buying opportunities. This may prove another one.
Despite the so-called bloodbath, the FTSE 100 is still up 17.6% over the last 12 months, with dividends on top. The S&P 500 has climbed 18.3% and the Nasdaq 21.7%. Investors remain comfortably ahead.
Is this an opportunity to consider Scottish Mortgage?
It’s a similar story at the Scottish Mortgage Investment Trust (LSE: SMT), one of the UK’s most popular technology-focused funds. Despite the name, it’s actually a FTSE 100 company whose job is to invest in public and private businesses that are aiming to transform their industries through technology and innovation.
The portfolio typically holds between 50 and 100 companies, but its biggest position by far is Elon Musk’s Space Exploration Technologies Corporation, better known as SpaceX.
Scottish Mortgage first invested in SpaceX in 2018 and benefited enormously as its valuation surged. Inevitably, the trust has slipped as enthusiasm around SpaceX has cooled in recent days. The trust is the weakest FTSE 100 performer over the last week, down 8.05%. Even so, it’s still up 57% over one year and 101% over three.
SpaceX isn’t the whole story. Scottish Mortgage also backed private companies such as ByteDance and Anthropic early, alongside listed giants including Nvidia and Amazon. So it’s been hit by the wider sector sell-off– but should also benefit if the sector recovers.
Scottish Mortgage is certainly worth considering for investors who want greater exposure to disruptive tech, but they should first check how much exposure they already have through any shares or funds they currently hold. Those comfortable with the risks may decide this is a chance to get in at reduced price. If markets remain volatile, there could be more buying opportunities ahead.
Should you invest £5,000 in Scottish Mortgage Investment Trust Plc right now?
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Harvey Jones owns shares in Scottish Mortgage Investment Trust.
