S&P To Crash 20% Next Month?

Let’s be honest – this market feels like it’s skating on thin ice. One earnings miss, one ugly Fed presser, one escalation overseas – and the whole thing could crack. The S&P 500, bloated by AI euphoria and dancing nervously around macro landmines, is giving us every reason to be cautious. A 20% correction is not just possible, but plausible as we explain it using PE multiples of S&P stocks and their current earnings base. And what could trigger it now? You guessed it right – the upcoming earnings!

This is where the speculation changes to reality, as investors await commentary on on-the-ground effects of tariff negotiations and how that’s going to change sales growth. And when the big dogs start revising outlooks lower? Valuations won’t just “normalize.” They will reset, potentially violently. But here’s the thing: your portfolio doesn’t have to crater with the index. The world’s changing, and so should your allocation. Strategic allocation based on market conditions is one of the factors we take into account in our High-Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception.

So How Could You Smartly Re-Allocate Your Money?

The idea is to identify different categories of stock that are likely to provide a mix of resilience, income, stability, and low volatility – and allocate a certain percentage of your portfolio to them.

[1] Sector Pick: Utilities | American Electric Power (NASDAQ:AEP)

• Why: As the world electrifies – from EVs to AI data centers – utilities with exposure to nuclear and clean baseload power will suddenly be cool
• Numbers: >5% annual revenue growth in last 3 years, >20% operating margin, and nearly 30% operational cash flow margin at PE of <20; and to add to that >3% dividend yield growing annually at almost 8%
• Crash Resilience: +17.9% in 2025 so far, +10.4% in 2022 and +5.4% in 2018 which is much better than S&P 500

[2]

Industry Pick: Defense & Aerospace | General Dynamics (NYSE:GD)

• Why: Global tensions aren’t going away. Europe’s rearming, the U.S. is reshoring, and China isn’t looking to reduce defense spending as the U.S. wants. GD combines consistent defense revenue with strong exposure to business jets.
• Numbers: 13% growth last 12 months, 7.5% 3-year annualized growth, 10% operating margin, low debt load compared to market cap, 2% dividend yield, all this at about 20 PE
• Crash Resilience: While it didn’t do well in 2018, GD significantly outperformed S&P in 2025 and 2022 with +5.9%, and +21.7% return

[3] Factor Tilt: High Margin, Cheap Valuation, Cash Rich | Deckers Outdoor (NYSE:DECK)

• Why: Strong companies survive best. While DECK is not immune to shocks, but you get growth, strong balance sheet, agile supply chain, and brand pricing power at an attractive PE multiple that offers great cash flow yield
• Numbers: With nearly 20% growth, >20% operating margin, and nearly 20% free cash flow margin, the company is sitting on >$2 billion cash and very low debt – you get all this for PE <20 – thanks to its sharp fall this year.
• Crash Resilience: Up +9% in 2022 and +59% in 2018, Deck has suffered in 2025 but that’s precisely why it may be time to rotate money into it.

[4]

Domestic Demand & Low Import Risk | Dollar General (NYSE:DG)

• Why: With 80% revenue coming from food items – most being nonperishable goods made in the U.S. – DG serves middle America with little import dependency. As consumers downshift, Dollar stores win. Period.
• Numbers: >5% annual growth, free cash flow positive, >2.5% dividend yield, Nearly 9% free cash flow yield available at a cheap multiple of <20
• Crash Resilience: Amazingly consistent to say the least. Up +24.5%, +5.6%, and +17.5% in historically bad years of 2025, 2022, and 2018, respectively

[5] Low Volatility & Secular Tailwinds | Waste Management (WM)

• Why: Trash always pays. Add sustainability services, landfill gas, and pricing power, and you’ve got a low-volatility beast with monopolistic qualities.
• Numbers: >7% annual revenue growth, nearly 19% operating margin, 24% operational cash flow margin, and nearly 10% free cash flow margin.
• Crash Resilience: Significantly outperformed S&P 500 during crash years with +14.9%, -4.5%, and +5.3% return in 2025, 2022, and 2018 respectively.

But There Is So Much More To Long-Term Outperformance

You get the idea. Money keeps shifting to pockets of value – lower risk and/or upside potential. Portfolios need to be dynamic and that means constantly scanning through thousands of potential stocks and making allocation decisions.

But here is the thing: Leave that to us! Strategic shift in money allocation based on market dynamics is part of Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

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