There has been a lot of chatter this year about whether the US stock market has moved to an unsustainably high level. On this side of the pond, the flagship FTSE 100 index has also hit an all-time high this year, albeit falling back somewhat since then.
Still, if the US market has got ahead of itself, what might that mean for the UK?
A rising tide and all that
The old saying goes that a rising tide lifts all boats. Conversely though, a falling tide lowers all boats.
I think this applies to the relationship between the US market and the FTSE 100 too. The ebbs and flows of the New York index may not be mirrored in London. But if it has a sharp, sustained fall, I think it unlikely that the UK’s market would not also be affected.
But what about AI frenzy, you may ask? After all, the US market’s strong run in recent years has largely been fuelled by excitement about a small group of AI-exposed stocks – and the FTSE 100 has no equivalent.
Indeed, leading UK shares such as RELX, Autotrader Group (LSE: AUTO) and Rightmove have been hindered not helped by the rise of AI, amid investor fears it could eat into their core businesses.
Be that as it may, the US is the preeminent global stock market. If it falls far enough, it is likely to affect investor sentiment enough that the FTSE 100 would probably suffer whiplash.
Could the UK stock market crash?
Based on that logic, might the UK market be at risk of a stock market crash? After all, some US tech valuations look very hard to justify on traditional metrics.
We are indeed at the risk of a crash – always. Without doubt, the FTSE 100 will crash sooner or later. But nobody knows for sure whether it will be later or sooner.
While some investors look at US tech stocks and feel their valuations make no sense, others look at the same valuations and think they make perfect sense, based on those companies’ future earnings potential.
Indeed, it is this diversity of opinion that makes the market so dynamic.
Here’s what I’m doing in this market
So rather than sitting on my hands, I have been trying to take profits on some shares I think look fully priced – while keeping an eye out for possible bargains to add to my portfolio.
For example, Autotrader has been grabbing my attention lately. It has been pummelled by fears that AI could eat its breakfast. Users might simply ask ChatGPT or Grok for cars to buy rather than consulting with the longstanding platform directly.
That helps explain why the Autotrader share price has fallen 40% over the past year, while the wider FTSE 100 has moved up 18% during the same period.
