Shares Selling: Hamish McRae argues that the current moment might be optimal for unloading your stock holdings
The financial landscape is showing signs of turbulence, with major institutions warning of a potential market correction for the S&P 500. Goldman Sachs has predicted a 10-20% drop in the next year, although a full crash is not the consensus base case as of August 2025.
The elevated risk of a correction is due to several factors. Valuation concerns, with forward Price/Earnings (P/E) ratios around 22–23 and the Shiller CAPE ratio near 38, indicate that stocks may be overvalued. Economic and policy uncertainty, stemming from the Federal Reserve's cautious stance and fears of policy missteps, also contributes to this outlook.
Deteriorating fundamentals, such as slow job growth and GDP expansion under 2%, contrast with strong market rallies. This discrepancy could lead to a sudden repricing when fundamentals dominate. Market sentiment has shifted towards euphoria, a historical precursor to corrections, and technical analysis suggests the potential for new all-time highs in the near term.
However, a correction may present a buying opportunity if key support levels hold. Investors should watch Federal Reserve actions, earnings reports, and geopolitical developments as potential catalysts for volatility.
Meanwhile, the FTSE 100 is not expected to end the year above 9,000, with an average being 8,950. The index hit an intraday all-time high but later slithered back down, reflecting the broader economic uncertainty.
The retail sector in America, specifically the High Street, is struggling, with the hospitality sector also facing difficulties. The housing market is seeing a slowdown, with houses taking longer to sell.
On a positive note, the UK does seem to be the fastest-growing economy in the G7 so far this year, but this follows a very weak second half last year and is puffed up by an unsustainable increase in public spending. More than three-quarters of the FTSE 100 profits come from abroad.
Inflation is rising, particularly in the UK and US, which could have an impact on long-term interest rates. The ten-year gilt yield in the UK touched 4.7% in recent trading, and it is expected that the UK will be hit with higher taxes in the autumn.
The world economy is experiencing troubling signs, with the S&P 500 closing at a record high but weakening the following day. Longview Economics in London has a model signaling that the S&P 500 is a strong sell, citing signs of froth and speculation. If shares are likely to fall, it may not be a bad idea to sell a few before they do.
Investors should keep a close eye on these trends and developments, as they may signal a period of volatility and potential opportunities in the market.
- In the face of potential market corrections and rising inflation, re-evaluating personal finance strategies might be prudent, such as considering the possibility of investing in less volatile assets, like government bonds, to avoid hefty losses associated with a market downturn.
- As the housing market slows down and taxes are expected to rise in autumn, prospective homebuyers might consider waiting for more favorable conditions to secure a mortgages, given the potential impact of increasing taxes on their finances.
- The signs of market turbulence noticed in the financial landscape could create opportunities for long-term investors willing to take calculated risks. By keeping a watchful eye on economic indicators, policy decisions, and corporate earnings, one can identify periods when stocks might be undervalued, opening up chances for profitable investments in personal finance.
