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Stock Market & Cryptocurrency Update – November 15th, 2021
Bottom Line: The US stock market is the greatest wealth creation machine in the history of the world. I want you to benefit from it without making emotional mistakes with money. Too often when we have a rare short-term downturn in the markets - it's too late to offer up information that might have been helpful ahead of time. My first rule of money is to never let your money and emotions cross paths. That’s what this is about, an analytical evaluation of the stock market.
Here's the year-to-date performance of themajor indexes:
- DOW: +18%
- S&P 500: +25%
- Nasdaq: +23%
Stocks were flat to lower over the past week with the DOW and Nasdaq off about 1% as the earnings driven rally took a pause as the reporting season began wrapping up. But what a reporting season it was. 81% of companies exceeded expectations and the average beat was – 10% above expectations. It was the fourth best earnings season relative to expectations on record. That’s the back of the 2nd quarter, having been the 2nd best on record. All of this is to say that larger companies have generally flourished this year as they’ve been able to navigate the challenges of the supply chain and inflation woes better than their smaller counterparts. That’s not to say all is clear from here. The highest number of companies have warned about the impact of inflation going forward that we’ve had since such data was monitored in the financial markets. Nothing lasts forever and the moment we, as consumers, who make up about 70% of the US economy can no longer stomach the ever-higher prices – companies too will feel it.
As for cryptos over the past week, the biggest players a la Bitcoin, weregenerally lower as well with Bitcoin most recently off about $2,000 over the past week checking in at $66,000. There was big news in the Bitcoin realm specifically,as its biggest update in years took place. The update, known as Taproot, aims to make transacting in cryptocurrency easier for businesses and consumers interested in using it as a currency. It’sbeen received well and should aid in furthering the mainstreaming of it in society.
As for the question. How low can stocks go?
Here’swhere the market stands based on fundamentals using the S&P 500 as the example.
- S&P 500 P\E: 29.50
- S&P 500 avg. P\E: 15.95
The downside risk is 46% based on earnings multiples right now from current levels. That’s flat with a week ago, however it’s 9% lower than the highs hit earlier this year due to improved earnings. It's the power of improved earnings, helping to justify stock prices which also mitigates risk. It's always important to ensure that you're positioned for negative adversity. I don’t expect anywhere near a 46% decline, however in theory, it’s possible. If a short-term decline at those levels wouldn't affect your day-to-day life, you're likely well positioned. If that is a problem for you, you should probably seek professional assistance in crafting your plan that balances your short-term needs with long-term objectives.