The London stock market has had a good 2025 so far overall, with the flagship FTSE 100 index of blue-chip shares hitting new all-time highs on multiple occasions.
However, I am nervous that ongoing economic uncertainty in key global markets could hurt stock market sentiment as the year grinds on. On one hand, critical US economic data has been holding up better than many people expected. Set against that though, are a number of less positive factors including weakening consumer demand in many markets and an uncertain outlook for monetary policy.
That could give us stock market volatility – or even a full-blown crash. Only time will tell.
I am not a believer in market timing – it is impossible for anyone actually to know when the next crash may come along, no matter how confident they may seem in their prediction.
But while I do not believe in market timing, I still think it is worth thinking as an investor about how to get ready for the next bout of volatility, whenever it may come along.
The window of opportunity in such a situation can be short, so I think it makes sense to be prepared.
Getting funds ready
One thing I have been doing in recent weeks is having a think about what money I might be able to invest if the stock market does suddenly tumble.
The thing is, I think there are some great opportunities in the current market, so am not inclined to sit on cash when I think I could be putting it to work now in hopefully good ways.
Then again, if there is a market crash and it throws up some even better investing opportunities, I want to be ready to act.
So although my portfolio remains mostly in shares not cash, I have recently taken some profits off the table by selling some of my better-performing investments that I now think are fully valued, or in some cases potentially even overvalued.
Drawing up a watchlist of shares to buy
Another thing I have been doing lately is thinking about what shares I would want to consider for my portfolio if stock market volatility meant they became more attractively priced.
Case in point: Nvidia (NASDAQ: NVDA). The chip giant has ridden artificial intelligence (AI)-related demand very well, to the extent that it now commands a market capitalisation of $4.4trn.
It is massively profitable, has seen sales soar in recent years and has a large installed base of users. Add that to its proprietary technology and I think the investment case for Nvidia looks strong – at the right price.
That $4.4trn market-cap is huge, even relative to earnings. Currently the chip giant trades on a price-to-earnings ratio of 59.
Such a valuation looks objectively expensive to me, even before considering risks such as US tariff policies and export controls hurting Nvidia’s ability to sell into the China market.
Given such risks, I will not buy Nvidia stock at today’s price. But if future stock market volatility brought the price down far enough, the valuation could suddenly look a lot more attractive. That is why it is on my watchlist.
