How low can stocks go? Updated risks and values for June 19th

How low can stocks go? Updated risks and values for June 19th              

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 stand against their all-time high levels:                              

  • DOW: off 6.1%               

  • S&P 500: off 3.5%               

  • Nasdaq: off >1%               

Markets were mixed over the past week with the S&P 500 and Dow lower but the Nasdaq posting gains. This tells you two things. The trade/tariff talk isn't as big of a deal as the media's making of it and the economy remains strong enough to thwart minor headwinds and if anything – we're positioned to come out on top.  

Here's the 2018 year-to-date performance:                        

  • The Dow is up 1.1%, the S&P 500 is up 3.8% & the Nasdaq is up 12.2%                

As far as how low stocks could go...? If only market fundamentals mattered here's what we'd want to consider regarding the S&P 500 for example.                             

  • S&P 500 P\E: 25.24                         

  • S&P 500 avg. P\E: 15.7                              

The downside risk is 38% based on earnings multiples right now from current levels. That's 2% less risk compared with this time last year on a fundamental basis alone and about flat with a week ago. Earnings have continued to grow faster than stock prices over the past year.    

Now, as always, I don't expect that type of selloff to occur (38%) but it's always important to ensure that you're positioned for negative adversity. If a short-term decline at the 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).       

 

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