How Low Can Stocks & Crypto Currencies Go? November 4th, 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% last week, 4% away from record high
- S&P 500: -2%, 2% away from record high
- Nasdaq: -2%, 2% away from record high
For the second straight week selling ensued on Wall Street as the election, earnings and overall economic conditions were weighed by investors. With the election tomorrow, it easily has and will continue to overshadow all else in the market – which is why, for example, despite Friday producing the worst jobs report since December 2020 – smack dap at the peak of the pandemic, stocks managed to rally to end the week. Investors have priced in a potential Trump victory and GOP clean sweep in Congress to a certain extent which has added to market buoyancy despite plenty of fundamental concerns that have cropped up. So, about those...starting with earnings.
Through Friday, 70% of companies had reported earnings for the third quarter. 75% of companies reporting had topped expectations with earnings growth of 5.1% year-over-year which is the best pacing yet during the reporting season as some strong big tech earnings reports have helped considerably over the past week. The jobs report was a different story.
Yes, there were hurricanes and a Boeing strike that factored into reporting, no that doesn’t change the fact that at first print only 12,000 jobs were said to be added during October, or more to the point, that in reality it was a net negative jobs report. Last month, when a strong jobs report was released, I said this in predicting massively overstated job creation: There’s a lot that doesn’t add up with the government report. Notably, in August, the Federal government said it had overstated jobs growth in these monthly reports by 818,000 jobs over the prior year. It would appear that the BLS is continuing to wildly overstate job growth. I was proved correct with the first revisions to the previous month’s reporting. In last month’s reporting I specifically estimated negative revisions totaling 111,000 jobs. The actual revision was 112,000.
Whether its shenanigans aimed at propping up the Biden-Harris administration or incompetence (or perhaps some of both) the BLS’s initial reporting is non-credible. Friday’s jobs report showed a net number of –100,000 jobs – the worst in over four years dating back to when COVID lockdowns were forcing people out of work. As for cryptos...
After a big rally in the previous week, cryptos resumed a rally on the general belief that Donald Trump, a crypto advocate, will win. Bitcoin gained over $1,000 to trade above $68,000. Ethereum was slightly higher trading at $2,450. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies gained about 1% for the week.
Gold meanwhile remained near record territory above $2,740 an ounce. I can’t provide value analysis for digital currencies because they retain no inherent value, but I can for stocks because they do. On that note...
Here’s where the stock market stands based on fundamentals using the S&P 500 as benchmark.
- S&P 500 P\E: 29.22
- S&P 500 avg. PE: 16.10
The downside risk is 45% based on earnings multiples right now from current levels. That’s 1% lower than a week ago as fundamentals slightly improved and stock prices fell. We have a cycle with the most fundamental risk that’s been priced into the market since April of 2021 when the impact of rising inflation was first being felt. For perspective, the pandemic cycle is the only time valuations have been this high over the past decade and prior to this cycle, you’d have to go back to the Great Recession in ‘08- ‘09 to find prices this high on a fundamental earnings basis.
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.