Stock Market & Crypto Currency Update – January 22nd, 2024
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 close the DOW, S&P 500 & Nasdaq are to their all-time highs.
- DOW: Record high
- S&P 500: Record high
- Nasdaq: -5%
All three of the major stock indexes are now higher for the year with two fresh record highs following a volatile week as earnings season heated up. Investors are still looking for direction in the early weeks of this year as economic data continues to point in the direction of the Federal Reserve, leaving interest rates at the current elevated levels longer than most expected. Nevertheless, as investors are seeking direction, the upward momentum that stocks have had for close to three months once again took hold in the shortened trading week. That was notable in part because earnings reports, as the season is heating up, haven’t been great. Through Friday, with 10% of companies reporting, earnings have declined 1.7% year-over-year – which is worse than at this time a week ago. Additionally, more companies have issued negative guidance than positive guidance at the time of their reporting. That’s leading to an already historically pricy market becoming more so both due to higher stock prices, but also because of lower earnings. This is something to watch closely as trading this week unfolds with many key earnings reports set to roll in. The most recent leg of the rally feels more like a case of money needing a place to go, than it does conviction by investors at these levels. As for cryptos...
The positive stock market momentum didn’t carry over to digital currencies. Bitcoin lost another $1,000 on the week with prices back below $42,000 as investors have continued to “sell the news” after the long-awaited spot bitcoin ETFs were approved by federal regulators. Bitcoin has lost 10% since the news hit and is in search of a new catalyst to help support current prices. What’s been evident in the early going is that there hasn’t been a rush of new investors buying into the digital currency space because of the new ETF rollouts. Ethereum, likewise, has sold off from recent highs – losing about $100 for the week with the price back under $2,500. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, was crushed again for the second straight won the week with prices at three-plus month lows as there’s a belief that the new competition with pure play bitcoin ETFs will take attention and money away from the previously existing ETFs that spread investor money around the crypto space. I can’t provide any value analysis for digital currencies because they have 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: 26.27
- S&P 500 avg. PE: 16.04
The downside risk is 39% based on earnings multiples right now from current levels. That’s up from a week ago with stock prices rising and fundamentals slightly weakening. It remains the most risk that’s been priced into the market since June of 2021 when the impact of rising inflation was first being felt. It’s 21% less risk than the highs reached during the peak of the pandemic bubble. 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.