Stock Market & Crypto Currency Update – September 25th, 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: -8% (-2% last week)
- S&P 500: -10% (-3% last week)
- Nasdaq: -18% (-3% last week)
Last week I spoke of three big themes to watch in the financial markets. The Fed/inflation, the inverted yield curve and the UAW strike. All loomed large as the stock market had its worst week since the onset of the banking crisis in March which effectively placed the S&P 500 back into correction territory (a loss of 10% or more from highs) and the Nasdaq at risk of reentering bear market territory (a loss of 20% or more from highs). The biggest news of the week was no doubt the Federal Reserve’s nuanced commentary following their September meeting in which there was an indication that there likely will be another rate hike coming and that rates will remain higher for longer than many economists had expected. While the market reaction was that of surprise, there’s no reason that it should come as a surprise. Not only is inflation still substantially higher than the Fed’s target rate of 2%, but inflation has also reaccelerated for two consecutive months. As for the yield curve/bond market situation – it continues to scream of concerns moving ahead as 10-year Treasury rates jumped to their highest yields since 2007 – with 2-year Treasury’s at their highest rate since 2006...preceding the Great Recession which officially began in November of 2007 stemming from a banking crisis which began in March of that year. This week the potential for a partial government shutdown will be in focus. As for cryptos...
After having had the best week in over two months in the week prior, digital currencies were essentially flat with Bitcoin sitting above $26,000 and Ethereum slipping just a touch below $1,600. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, was slightly lower 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: 24.66
- S&P 500 avg. PE: 16.03
The downside risk is 35% based on earnings multiples right now from current levels. That’s 2% less risk than a week ago as stocks were lower with unchanged fundamentals. It’s 22% 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.