Stock Market & Crypto Currency Update – June 5th, 2023
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, however most investors in the crypto space have now lost money on their original investments. 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 far the Dow, S&P 500 & Nasdaq are from their record highs:
- DOW: -8% (+2% last week)
- S&P 500: -11% (+1% last week)
- Nasdaq: -18% (+1% last week)
A feverish rally to end the week left stocks higher across the board with the DOW outperforming for a change. The one-two punch of a debt ceiling deal having been reached which took the uncertainty of a potential government debt default off of the table, along with the strong jobs reports provided fuel for the rally which pulled markets close to 1-year highs despite still being well below all-time highs. One of the more encouraging aspects of Friday’s rally was that it was broad-based. Recently market gains have been concentrated in a limited number of companies and industries within technology. If there’s to be another leg up for stocks it’ll need to come through the participation of stocks that have lagged year-to-date. Will that happen? It comes down to whether you believe we’ve entered the “goldilocks” scenario?
The optimism for stocks and the economy generally right now, centers around the idea that the Federal Reserve will no longer need to raise interest rates and that there will be a “soft landing” in the economy. Meaning an end to the extraordinary inflation and interest rate cycle without a meaningful recession. The next most closely watched move will be with the Fed’s interest rate decision for June. As to whether it’ll all work out? I remain skeptical. As for cryptos...
What happened with stocks didn’t translate into the digital currency space. Leaders were lower last week as investors looking for increased risk prioritized tech stocks instead. Bitcoin enters this week sitting just above $27,000 – having lost about $700 last week. Ethereum was flat at $1,900. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies was essentially flat as well. The biggest short term crypto questions regarding regulation remain. Regulators are continuing to cast a shadow over the sector as it’s unclear where and how new threatened regulations from world governments, but especially our federal government, will impact. I can’t provide value analysis for cryptos 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 benchmark.
- S&P 500 P\E: 24.79
- S&P 500 avg. PE: 16.01
The downside risk is 35% based on earnings multiples right now from current levels. That’s 1% more risk than a week ago as prices rose, and fundamentals were flat. It’s 22% less risk than the highs reached last year. If invested in stocks, I think it’s wise to be prepared for more volatility going forward than what we’ve seen of late. If the goldilocks scenario plays out there’s room for upside. But at this point with prices where they are, it pretty much needs to for there not to be downside risk over the near term. 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.