How Low Can Stocks & Crypto Currency Go? – January 29th, 2024
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 close the DOW, S&P 500 & Nasdaq are to their all-time highs.
- DOW: Record high
- S&P 500: Within 1% of highs
- Nasdaq: -4%
All three of the major stock indexes were higher once again last week with fresh record highs for the DOW and S&P 500 during the week as earnings season continued to roll along and additional economic data continued to reflect elevated but still moderating inflation. The key inflation number for the week was the consumer core consumption index from December which showed prices ex-food and energy rising by an annualized 2.9% most recently. Still above the Fed’s 2% target rate but still trending in that direction. As for earnings...
Right at a quarter of all companies had reported earnings as of the end of the day Friday and the news continues to be not so great. Earnings have declined by 1.4% for the companies that have reported. If this holds it’ll be the fourth time in five quarters that companies have reported declines in earnings. With stock prices at record highs that means one thing. Less value in the market and more expensive investments. More on that in a moment but first for a look at cryptos...
It was another wild ride last week in the wild, wild, west of the digital currency space. The week started off with a strong continued selloff of tokens as the post-spot Bitcoin ETF approval momentum trade continued. By mid-week however there was an indication that selling pressure in crypto ETFs had slowed and prices rebounded for most including bitcoin, to post gains for the week. Bitcoin is back above $42,000, which is still well off recent highs but that also shows potential support in the low $40k range. Ethereum didn’t perform as well and lost another $150 for the week with the price back under $2,300. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, rebounded to two and a half week highs after significant selling in the prior two weeks. I can’t provide any value analysis for digital currencies because they have 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: 26.55
- S&P 500 avg. PE: 16.04
The downside risk is 40% based on earnings multiples right now from current levels. That’s up from a week ago with stock prices rising and fundamentals slightly weakening. It remains the most risk that’s been priced into the market since June of 2021 when the impact of rising inflation was first being felt. It’s 22% less risk than the highs reached during the peak of the pandemic bubble. 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.