Stock Market & Crypto Currency Update – September 11th, 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: -6% (-1% last week)
- S&P 500: -7% (-1% last week)
- Nasdaq: -14% (-1% last week)
September skepticism and seasonality began to set in last week. Historically September is the weakest month of the year for stock market performance and the first full week of it played out that way with indexes lower across the board. After a weak jobs report the previous week convinced many investors that the Federal Reserve may been done raising interest rates, a closer review of data last week led many to a different conclusion. The stock market is in a bit of a quandary right now. Though still a ways off from all-time highs, stocks are pricey with declining earnings. Higher interest rates only place greater pressure on margins and operating performance for stocks. Good economic data is likely to lead to higher interest rates. Conversely, poor economic data, which may suggest the Fed may stop raising interest rates would also be a poor indicator for business performance. Given current valuations for stocks this reality creates a heads I win tails you lose type of effect for stocks...unless economic data is almost perfectly neutral. And even then, that’s not something that’s likely to drive major indexes higher. That type of economy would create a stock pickers market with specific winners and losers. This dynamic in markets is likely to keep a lid on prices until there’s greater clarity about the Federal Reserve interest rate policy later this month. However, a huge key will come in the form of Wednesday’s CPI report, which will update the consumer inflation rate for August. As for cryptos...
Digital currencies remained under pressure over the previous week as there’s increasingly a lack of volume and participation by big investors in the space. Bitcoin remains below $26,000 for the third straight week while Ethereum is hovering just above $1,600. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, was effectively flat as well. 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: 25.45
- S&P 500 avg. PE: 16.03
The downside risk is 37% based on earnings multiples right now from current levels. That’s lower than a week ago as stocks were lower with unchanged fundamentals. 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.