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Gold soaring over $5,000 suggests investors might be scared of a stock market crash. Silver has reached over $100 an ounce too. I see a serious ‘flight to safety’ here, when investors fear more volatile assets could fall.
Many buying into precious metals will presumably have sold government bonds too. And that suggests a second loss in confidence.
Inflation remains stubborn and the US jobs outlook continues its 2025 weakness. The Federal Reserve will also replace its chair this year. And markets fear the possible economic outcomes of any drastic cuts in interest rates that might result. The US dollar’s fall adds to weak confidence in cash-based investments.
Finally, nobody can have missed the AI boom. Huge sums are being spent on building out the technology. But not many companies have a clear roadmap to sustainable profits. The potential might be huge. But until it can be quantified, stock price valuations are hard to justify objectively.
What to do?
So, a possible tech stock bubble, growing economic and government uncertainty, and the biggest flight to precious metals safety most of us will probably ever see. But will the stock market really crash? Nobody knows.
To turn a common saying on its head, I think a lot of investors are failing to see the trees for the wood. The overall stock market might look a bit scary now. But I can still find plenty of cracking individual stocks on attractive valuations.
Yet if we do see a good chance of a stock market crash this year, what should we do? We could consider holding back as much cash as we can. And then use it to snap up depressed bargain shares if they tumble. You know, the exact opposite of what so many did in the 2020 crash, when they instead panicked and sold up.
A stock to consider
Another option to see us through uncertain times is to focus on relatively defensive stocks. And in the UK, I think Tesco (LSE: TSCO) has to be a strong consideration on that score. The shares have risen close to 40% over the last five years, which suggests defensive investors are already on it.
But it doesn’t really look overvalued to me, with a forecast price-to-earnings (P/E) ratio of 15.5. That might be a bit above what I’d expect for the long term, but not by much. I do, though, see it as the main risk now. And when renewed stock market optimism moves investors to riskier alternatives again, we might see some Tesco share price weakness.
On the dividend yield front, Tesco’s isn’t the biggest at a forecast 3.4% right now. But it’s in line with the FTSE 100 average, and should be comfortably ahead of where long-term inflation is likely to go. It’s not a passive income seeker’s dream. But in my book it’s just fine.
Long-term value
Warren Buffett famously suggested “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” And that’s my final suggested criterion for investors considering Tesco shares… or any shares.
