Stock Market & Crypto Currency Update – April 10th, 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: -9% (+1% last week)
- S&P 500: -14% (flat)
- Nasdaq: -25% (-1% last week)
It was a mixed bag for stocks in the abbreviated trading week in advance of what’s likely soon to be a heavy dose of volatility. Today investors will digest Friday’s job’s report which showed slowing but steady employment gains and wage gains – which, at 4.1% over the past year, have remained far lower than inflation. While slowing job and income growth might not sound like the best thing for our economy, many investors will treat it as positive thinking the Federal Reserve will likely be less aggressive in raising interest rates going forward. Speaking of the Fed and inflation... On Wednesday we’ll receive the most important monthly economic data these days – the CPI, or Consumer Price Index which will tell us how hot inflation ran in March and will provide significant insight into what the Federal Reserve might choose to do with interest rates going forward. Last but not least there’s earnings season which is about to roll out what corporate earnings looked like for the first quarter this year. And the answer isn’t expected to be very good. Earnings are expected to have declined by 6.6% in the first quarter of the year for what would be the worst earnings decline since the 2nd quarter of 2020 – at the onset of the pandemic. So yeah, there are no shortages of catalysts to consider in the coming week plus and there’s sure to be a significant amount of volatility which comes with them. As for a look at cryptos...
Just as stocks were mostly flat over the past week, so too have the leading digital currencies. Bitcoin continues to hold around $28,000, a number it’s been near for three weeks after having dipped below 20k to start the year. Likewise, Ethereum is sitting above $1,800 and the Bitwise ETF, which represents the top 10 cryptocurrencies remains at its highest levels since November. If cryptos can continue to hold current levels as a new base, it could lead to breakouts back above $30k for bitcoin and $2,000 for Ethereum in the near future. Though those are big ifs. 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: 21.94
- S&P 500 avg. P\E: 16
The downside risk is 27% based on earnings multiples right now from current levels. That’s flat with a week ago, however, it’s 30% less risk than the highs reached last year. So that’s the good news. There’s less downside in the market today than there was a year ago today. But that’s also in part due to markets having sold off quite a bit since then. My concern regarding contagion risk remains high and I can’t quantify where this all goes from here currently. If invested in stocks I think it’s wise to be fully prepared for a 27% or so selloff from here in case we do see systemic impacts in the economy and potential panic selling in the financial markets. Otherwise, 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.