Stock Market & Crypto Currency Update – August 28th, 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: -7% (-1% last week)
- S&P 500: -8% (+1% last week)
- Nasdaq: -13% (+4% last week)
It was a mixed market last week with tech stocks posting a strong bounce back performance driven in part by Nvidia's strong AI-related earnings. Nvidia’s earnings report renewed hopes that the advent of the AI age going mainstream will create a period of sustained growth for related companies in the foreseeable future. The other market moving news came from Federal Reserve Chairman Jerome Powell. Powell was non-committal about future interest rate policy while making clear that the Fed would continue to raise interest rates as deemed necessary to bring inflation back in line with their historical target of 2%. As we’re heading down the homestretch of August, we’re heading towards what’s historically the worst month of the year for the stock market – September. Given the lack of direction markets currently have, investor seasonality could play a role in which direction stocks trade in the coming weeks. As for cryptos...
While tech stocks rallied last week, digital currencies continued to remain under pressure. This confirms a disconnect between investors looking for risk choosing both tech stocks and cryptocurrencies when putting money to work as had previously been the case. After having had the worst week of performance since November in the prior week, digital currencies held those levels and were flat to lower across the board. Bitcoin remains just above $26,000 while Ethereum is hovering just above $1,600. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, lost 2% on the 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: 25.15
- S&P 500 avg. PE: 16.02
The downside risk is 36% based on earnings multiples right now from current levels. That’s flat from a week ago as stocks were slightly higher with slightly improved fundamentals. It’s 21% 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.