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Talk of when the next stock market crash will happen remains a hot topic. In recent sessions, the CBOE Volatility Index (VIX) struck five-month highs, reflecting the scale of investor and trader tensions.
The so-called ‘Fear Index’ spiked as trade tensions between the US and China reignited, worsening worries over the global economy. With inflation rising, government debts rising too, and concerns over US share valuations rolling on, it’s no wonder that markets are feeling jittery.
So I asked artificial intelligence (AI) whether we can expect an imminent market downturn. Did it shed any light?
Crash talk
I asked ChatGPT the simple question “is the stock market about to crash”? After giving the usual caveats about market corrections being “notoriously hard to time or predict,” the answer it gave was more detailed than I’d expected, though a prediction on the next crash wasn’t forthcoming.
ChatGPT said “I wouldn’t confidently bet that a crash is ‘right around the corner,’ but I think there’s a significantly elevated probability of a sharp correction (say 10-20%) over the next 6 to 18 months. Whether that correction turns into a full-blown crash depends heavily on catalyst events (policy missteps, credit stress, geopolitical shock, earnings disappointments) and investor sentiment“.
No clear answer
I’m not a fan of using AI to make stock market predictions, share tips or anything else to do with investing. Markets are driven by complex human behaviour and macroeconomic factors that ChatGPT and the like simply can’t understand. They also lack the judgment and experience to make informed and valuable opinions.
What’s more, the conclusions of these AI models are often based on incorrect data, out-of-date information, and/or oversimplified assumptions that also often creates ‘bad’ answers.
That’s not to say that ChatGPT’s statement about a market crash is wrong. Only time will tell on this front. But it’s just one more opinion in a sea of them put forward by investors, brokers, economists and other interested parties.
And at the moment, it’s hard to see the wood for the trees.
Preparing for a crash
Guessing the timing of the next market slump is hard, whether you’re a shiny new AI model or a veteran share investor. What’s important is being prepared for a possible crash whenever that may be, and having the confidence that share markets always rebound from crises.
I’ve built a diversified portfolio to limit the possible impact of a crash on my portfolio. I also have cash on hand to capitalise on any possible dips.
I’m already looking at Halma (LSE:HLMA) as a possible stock to buy if the FTSE 100 heads lower. This is a high-quality business, as reflected by its sustained sales growth even in these tough times. The health and safety technology manufacturer has delivered 22 straight years of annual earnings growth, and 46 consecutive years of raised dividends.
However, Halma’s 29% share price rise leaves it looking a bit too expensive for my liking. Its forward price-to-earnings (P/E) ratio is 33.4 times, which could leave it vulnerable to a price correction if growth cools.
I believe it has considerable long-term growth potential as safety and environmental regulations tighten. So I’ll look to add it to my ISA or SIPP if it indeed falls in price.
