How Low can stocks go? Updated risks and values for 1-31-17:
Bottom Line: In-case you're new to this series, 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. Too often when we have a rare short-term downturn in the markets - it's too late to offer up information that might have been helpful ahead of time. This week's edition of "how low can stocks go" goes as follows... re the Dow, S&P 500 & Nasdaq for stand against their all-time high levels:
DOW: >1% off all time high - slightly higher vs. a week ago
S&P 500: >1% off all time high - slightly higher vs. a week ago
Nasdaq: >1% off all time high - slightly higher vs. a week ago
Despite the media and a smattering of well known leftists in business attempting to make a mountain out of a mole hill on back of the President's executive orders - the market is actually slightly higher across the board vs. a week ago and is still near all-time highs. Earnings season is still in full force and we're still on pace to have the first positive quarter for US corporate earnings in right at two years which is huge if that holds. As far as how low stocks could go...If only market fundamentals mattered here's what we'd want to consider with regard to the S&P 500 for example.
S&P 500 P\E: 25.6
S&P 500 avg. P\E: 15.64
The downside risk is 39%-64% based on earnings multiples right now from current levels. Now, as always, I don't expect that type of selloff to occur but its always important to ensure that you are positioned for negative adversity. If a short-term decline at the aforementioned levels wouldn't affect your day-to-day life, you're likely well positioned to continue to take advantage of investment opportunities. If that size of selloff would rock your world over the short-term, that's when you should probably seek professional assistance in crafting your plan (that balances your short-term needs with long-term objectives).