Stock Market & Crypto Currency Update – August 14th, 2023
Bottom Line: My first rule of money is to never let your money and emotions cross paths. The purpose of this story is to inform you as to what's possible in a near worst-case outcome for the financial markets. The reason is to understand what's possible, though unlikely, so you can plan soundly for your financial future unemotionally. The US stock market is the greatest wealth creation machine in the history of the world. Likewise, cryptos have created generational wealth for many who were early, however most investors in the crypto space have now lost money on their original investments. I want you to benefit from investing without making emotional mistakes with money. Historically, when investors attempt to time the market, they end up worse off than if they’d stayed with their original plan over 90% of the time. This is all about combating those types of mistakes.
Here's how far the Dow, S&P 500 & Nasdaq are from their record highs:
- DOW: -4% (+1% last week)
- S&P 500: -7% (flat last week)
- Nasdaq: -15% (-2% last week)
It was a tale of two markets last week once again. One of industrials which generally managed to eke out gains and one of high-flying technology which sold off. As we move beyond earnings season it’s becoming clear the momentum market, which had generally been lifting stocks higher across the board since the March lows, is being replaced by a sector and at times specific stock pickers market. That’s the byproduct of stocks being as pricey on a fundamental basis as they’ve been in a year and a half – in part because earnings are declining – and mixed messages within economic data. Last week’s inflation data was a classic case. Consumer inflation as measured by the CPI came in a touch below expectations at an annualized 3.2%, however producer prices as measured through the PPI came in well above expectations. Wholesale inflation is a sign of what’s to come and it appears as though a slight acceleration of inflation is happening in real-time. This is logical, as we know for example, energy prices have risen considerably over the past month. It’s safe to say declining corporate earnings combined with potentially rising inflation isn’t a good combo for short-term market performance. Tuesday, when monthly retail sales figures are announced, is an important day for the markets this week. If sales come in especially strong – it could be further confirmation inflation is reaccelerating which could prompt the Federal Reserve to continue raising interest rates in future months. Though it might sound odd, a weaker number would likely draw a better broader market response (unless they’re so low that a recession warning would be triggered).
Digital currencies have been flat to higher over the past week. After hitting below $29,000 recently, Bitcoin is has broken back above $29,000 while Ethereum is hovering just above $1,800. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, was essentially flat for the second straight week. Questions about regulation remain. Will the federal government seek to compete with the current crypto players, or will they allow the digital currency space to evolve as it is? I can’t provide value analysis for cryptos currencies because they retain no inherent value, but I can for stocks because they do...
Here’s where the stock market stands based on fundamentals using the S&P 500 as benchmark.
- S&P 500 P\E: 25.48
- S&P 500 avg. PE: 16.02
The downside risk is 37% based on earnings multiples right now from current levels. That’s flat with a week ago as stocks were mostly flat with fundamentals mostly unchanged. It’s 20% less risk than the highs reached last year. 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 longer term objectives.