Stock Market & Crypto Currency Update – July 24th, 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% (+2% last week)
- S&P 500: -5% (+1% last week)
- Nasdaq: -13% (-1% last week)
The good vibes continued for industrials last week as the DOW & S&P 500 are back to prices last seen well over a year ago on the back of economic news indicating a combination of taming inflation and a resilient economy. The secret sauce the last couple of weeks has been a good start to the corporate earnings season, at least this side of technology. Disappointing results from tech names like Netflix led to the Nasdaq retreating a bit last week indicating that the rally has begun to evolve into more of a stock pickers’ market.
Through Friday, with 18% of companies reporting, 75% of companies have reported positive earnings surprises, and the average earnings beat has been by about 6%. The reality check however is that while most companies are producing better than expected results, the actual numbers aren’t impressive. The average decline in earnings has been about 9% year-over-year. An earnings recession appears to be in the offing and it's hard to imagine stock prices successfully sustaining new highs on the back of declining earnings. That’s worth watching over the next week as perhaps investors become a bit more value minded. As for cryptos...
Bitcoin & digital currencies were generally lower over the past week. Importantly, from a psychological perspective, bitcoin has fallen back through the $30,000 threshold while Ethereum is once again under $1,900. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, was essentially flat. 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: 26.26
- S&P 500 avg. PE: 16.02
The downside risk is 39% based on earnings multiples right now from current levels. That’s flat with a week ago as prices were slightly higher with fundamentals mostly unchanged. It’s 18% 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.