Investors should not fear a stock market crash

SHAREHOLDERS are enjoying one of their best runs in history. Since a trough in October 2023, the S&P 500 index of large American firms has risen by more than 40 per cent; peers in Europe, Japan and Canada have all gone up by at least half as much.

The fears of last year, that stubborn inflation would prevent central banks from cutting interest rates, keeping bond yields high and dragging share prices down, have all but vanished. In fact, many of the world’s monetary guardians have been slashing borrowing costs just as corporate profits have climbed and animal spirits have surged. The result is that plenty of stock markets are now hovering near all-time highs.

High stock valuations

Accordingly, investors are engaged in the activity that is traditional for such moments: not sending champagne corks flying, but obsessing about whether the good times are already over. They are hardly short of reasons to fret. Relative to underlying profits, American stocks have rarely been pricier, and then only before big slumps. Unnervingly, more than a third of the S&P 500’s market value is concentrated in just 10 firms.