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With the S&P 500‘s Shiller CAPE ratio near its all-time high, fears of a stock market crash are growing. I decided to ask ChatGPT if it thinks a crash will happen before the end of the year.
But first, what’s the Shiller CAPE ratio?
Robert Shiller’s legacy
The Cyclically Adjusted PE (CAPE) ratio was devised by legendary economist Robert Shiller. It’s a popular valuation metric used to assess whether the market is expensive or cheap relative to its long‑term earnings power.
The calculation is as follows:
The ratio hit an all-time high of 44.19 in December 1999, shortly before the dot-com bubble burst. Today, the ratio sits around 42.3, the highest it’s been since.
By comparison, it peaked at just 31.48 before the Wall Street crash of 1929, which triggered the Great Depression.
But that doesn’t mean a crash is guaranteed. So what does ChatGPT have to say about all this?
A measured response
I’ll preface this by stating that I don’t believe AI is a good source of information regarding markets. However, it is good at assessing all viewpoints impartially and summarising the data.
In this case, it did exactly that.
When asked, “Will the stock market crash before the end of 2026?“, it had this to say:
“There’s no consensus that the stock market will crash before the end of 2026, but a meaningful correction is possible.”
That tells me nothing I don’t already know. It went on to clarify that while most banks have positive year‑end targets, a minority of prominent bears are warning of a 20%–30% decline if macro pressures intensify.
So what’s the play?
There’s two things to know about market crashes:
1. They’re a normal part of the market cycle.
2. Nobody knows exactly when they’ll happen.
The trick is to always be prepared. One way is by keeping cash aside to exploit bargain prices.
That doesn’t mean buying anything that’s cheap — some companies never recover from a crash. I’m talking about established, resilient businesses with a track record of stable growth.
My current favourite?
With a diverse distribution portfolio spanning controls, seals, and life sciences, Diploma (LSE: DPLM) is a FTSE 100 stalwart with a decades-long history of double‑digit organic growth.
But right now, it’s very expensive. With a price-to-earnings (P/E) ratio of around 50, it’s more than triple the UK average.
That’s a good sign — investors clearly see future value in the stock — but it does mean any further growth potential is limited.
That said, the price is up 802% over the past 10 years, equating to an annualised gain of 24.6% per year. Considering everything that’s happened since 2016, that screams resilience to me.
But it doesn’t mean that’ll happen again. Diploma relies heavily on successful acquisitions, so execution risk is ever-present. If a rival prices out one of its products, it could find itself losing market share — and revenue.
The bottom line
Of all the stocks on the FTSE 100, Diploma is the first one I plan to buy if the market crashes. I already hold some shares, but grabbing a few more at a lower price could set me up for years of gains.
That’s why savvy investors don’t fear a market crash — they plan for it.
Should you invest £5,000 in Diploma Plc right now?
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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diploma Plc made the list?
Mark Hartley owns shares in Diploma.
This story originally appeared on Motley Fool
