Stock Market & Crypto Currency Update – December 4th, 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: -2% (+2% last week)
- S&P 500: -4% (+1% last week)
- Nasdaq: -11% (flat last week)
The ‘Santa Claus Rally’ was in full effect to kick off December keeping the positive momentum from November intact. Not only are the DOW and S&P 500 now within reach of all-time highs not seen in nearly two years, the S&P 500 closed Friday at the highest levels seen since March of 2022. Notably this happened despite Federal Reserve Chairman Jerome Powell throwing shade on the idea of interest rate cuts early next year. He said talk of rate cutting was “premature”. Nevertheless, the expectation by investors that inflation is now under control, despite remaining high, combined with an economy that’s slowing down but that isn’t flashing immediate recession signals, has been enough for the feverish rally that took hold in early November to continue into the onset of December. There aren’t many known near-term market moving catalysts on the horizon, which means it may be possible for the positively to generally continue as we approach yearend in what is historically the most favorable time of the year for stocks. As for cryptos...
After a brief pause in the multi-month rally in the digital currency space, the past week has brought tokens back to the highest levels in over a year and a half with Bitcoin threatening $40,000, after adding about $2,000 last week, which would be the first time at the level since April of 2022. Likewise, Ethereum added over $100 last week to price above $2,100 for the first time since May of last year. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, likewise added to its gains and is at the highest price since early 2022 as well. This indicates broad based support for digital currencies most recently and increasing optimism on the regulatory front. There’s a feeling within the sector that the corruption that spurred the collapses of Binace and FTX were isolated and that the market exposed the bad actors leaving the solid players in place. While that remains to be seen, the narrative is driving prices for now.
A key factor during the digital currency rally has been the amount of publicly available bitcoin is at the lowest level since 2018 creating a supply/demand imbalance which is helping push prices higher. Questions remain about the regulatory environment – but the cloud over the sector from that perspective seems to be lifting a bit. 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: 25.38
- S&P 500 avg. PE: 16.03
The downside risk is 37% based on earnings multiples right now from current levels. That’s 1% more risk than a week ago as stocks were higher but with fundamentals that were unchanged. It’s 21% 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.