Stock Market & Crypto Currency Update – October 2nd, 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: -11% (-1% last week)
- Nasdaq: -18% (flat last week)
September lived up to its reputation as the worst month historically for stocks. The major indexes were flat to lower last week with losses totaling 4% to 6% for the month (based upon the index) for the worst monthly performance thus far this year. Inflation, the inverted yield curve and the UAW strike continued to weigh on the markets last week as did the threat of a partial government shutdown – which was averted with a 45-day stopgap spending bill passed in Congress on Saturday. That sets up the potential for a bit of a relief rally at the onset of trading this week. The bigger question for markets, is the overall outlook from here. The Federal Reserve’s GDP Now guesstimate for third quarter economic growth finished with an expectation for robust growth of 4.9%. That rosy outlook isn’t expected to last however. As we’ve entered the 4th quarter the Congressional Budget Office has a current estimate for growth at –2% on the low side to 1.8% on the high side. In other words, the rosiest outlook calls for growth that’s well less than half of the expected 3rd quarter economic growth rate with the mean calling for negative economic growth in what could be the first quarter of a potential recession. There’s a lot on the line economically in the current quarter, which is why, in part, markets were as concerned about the prospects of a partial government shutdown as they were. As for cryptos...
Digital currencies outperformed stocks last week, posting gains across the board. Bitcoin is back to sitting above $27,000 and Ethereum is just a touch below $1,700. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, was up slightly 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: 24.48
- S&P 500 avg. PE: 16.03
The downside risk is 35% based on earnings multiples right now from current levels. That’s flat with a week ago as stocks were slightly lower with largely 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.