How Low Can Stocks & Crypto Currencies Go? February 24th, 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: +2% (-3% last week)
- S&P 500: +2% (-2% last week)
- Nasdaq: +1% (-2% last week)
It was a rough week on Wall Street last week highlighted by the worst day of the year for stocks to end it on Friday. Two prominent reasons emerged for the selloff – Walmart’s forecast for slower growth for the rest of the year – viewed as a benchmark for consumer strength and the monthly consumer sentiment index which seemingly confirmed what Walmart was warning about. Consumer sentiment unexpectedly declined 10% in February from January. So that will be the headwind the financial markets will be working against until and unless there’s new information to combat it.
There’s now a broad belief in the markets that tariffs imposed by President Trump along with cuts in government employment, programs and spending will reduce economic growth this year – which is possible but at the same time could reduce the rate of inflation which would work as a positive counterweight. Time will tell.
As for cryptos...
Digital currencies were choppy again last week for a fifth straight 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. President Trump 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 was flat over the past week and remains 2% higher for the year, trading below $100,000. Ether was one of the better performers last week after a brutal start to the year that still leaves it 16% lower on the year. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, was 2% higher for the week and is 8% lower on the year.
I can’t provide any value analysis for digital 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 the benchmark.
- S&P 500 P\E: 30.09
- S&P 500 avg. PE: 16.13
The downside risk is 46% based on earnings multiples right now from current levels – lower than a week ago as stock prices declined while fundamentals were mostly static. 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.