How Low Can Stocks & Crypto Currencies Go? – March 11th, 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. 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: 1% from All-time high
- S&P 500: >1% from All-time high
- Nasdaq: 1% from All-time high
It was a bit of a roller coaster ride for stocks last week as a significant selloff early in the week, gave way to new highs later in the week, only for a late day selloff on Friday. While stocks are still only a good day away from record highs once again the DOW posted its worst week since last October. That’s really a greater statement on the pervasiveness of the rally in recent months than anything else. That said, there were some signs that stock market leaders that’ve pulled the broader averages to record highs may be taking a pause for now. Post earnings, Apple just experienced its longest losing streak in nearly two years and Nvidia, which provided the catalyst for record highs most recently with its AI bullishness sold off significantly on Friday. That’s worth watching early this week.
On the data front, a stronger than expected jobs report on Friday is likely to add additional time to the Federal Reserve’s consideration about if and when they may begin to cut rates this year (it won’t be this month). Something else that could likely begin to be a market catalyst is the election. Now that the likely Biden-Trump rematch is all but assured investors may begin to employ strategies based upon expected outcomes in November. It’s also worth keeping an eye on the status of New York Community Bancorp. The embattled regional bank announced during the week that it has lost 5% of its deposits since January but was able to raise $1 billion during the week to create stability. Meanwhile for cryptos...
It was a record setting week for digital currencies, especially bitcoin, as it hit an all-time high back above $70,000 – adding about another $7,000 on the week. Sovereign debt concerns in addition to the possibility of the federal government creating its own central bank digital currency continue to provide reasons for those who’re inclined to funnel money into digital currencies. While bitcoin is and has been the poster child for the space, the gains have come across the board. Ethereum added $500 on the week to sit above $3,900. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, reached its highest price since the fall of 2021. 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: 27.81
- S&P 500 avg. PE: 16.06
The downside risk is 42% based on earnings multiples right now from current levels. That’s roughly flat with a week ago. It remains the most fundamental risk that’s been priced into the market since June of 2021 when the impact of rising inflation was first being felt. It’s 20% less risk than the highs reached during the peak of the pandemic bubble. The bottom line is that the market is somewhat historically expensive at these levels. Still, 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.