How Low Can Stocks & Crypto Currencies Go? February 10th, 2025
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.
Let’s start with a look at how the DOW, S&P 500 & Nasdaq have performed year to date:
- DOW: +5% (+>1% last week)
- S&P 500: +3% (+1% last week)
- Nasdaq: +1% (+1% last week)
We had a choppy but still positive week for stocks to start February as markets rallied in the face of tariff talk to start the week, but that then led to selling by the end of it. President Trump indicated on Friday, that aside from the 10% increase in the Chinese tariff that’s been imposed, there would likely be other tariffs implemented this week. Inflation concerns also reentered the conversation on Friday as the unemployment rate fell to 4%, with wages coming in stronger than expected as well. Corporate earnings were also in focus as well.
Through Friday, with 62% of companies reporting, 77% have exceeded expectations with earnings growth pacing 7.5% - which is about half of what it was just a week ago. By and large big tech earnings have been disappointing with companies like Amazon and Alphabet in particular, posting especially weak growth most recently. With big tech having led the stock market rally over the past year – this could indicate a significant shift in the market with a potential rotation into other sectors by some investors. What impacted the markets last week will continue to do so this week – starting with Trump administration policy.
As for cryptos...
Digital currencies were generally lower for a third consecutive week following the massive post-election Trump rally. President Trump, a crypto advocate, launched his own “Official Trump” digital currency recently as did First Lady Melania Trump under the “Melania” name. The administration has already signed an executive order for the purpose of creating a digital currency reserve for the US Treasury and has begun rolling back related regulations. Bitcoin is now only 2% higher for the year, trading below $100,000. Ether has had an especially poor run of late and is now 22% lower on the year – having given up all of its post election gains. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, is now 9% lower on the year.
Here’s where the stock market stands based on fundamentals using the S&P 500 as benchmark.
- S&P 500 P\E: 30.13
- S&P 500 avg. PE: 16.13
The downside risk is 46% based on earnings multiples right now from current levels – slightly lower than a week ago as fundamentals improved faster than stock prices for a third consecutive week. Still, 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.