Stock Market & Crypto Currency Update – June 20th, 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: -7% (+1% last week)
- S&P 500: -8% (+2% last week)
- Nasdaq: -15% (+2% last week)
The good vibes on Wall Street continued last week as stocks had their best week in three months with a rally that left both the DOW and S&P 500 outside of correction territory, a decline of 10% or more from highs, for the first time since in over 17 months. It was a big news week for stocks with both the CPI report and Federal Reserve policy decision on interest rates impacting during the week. Both gave investors what they wanted as consumer inflation has paced 4% over the past year, which is still high and double the Federal Reserve’s target rate for inflation, yet is the most benign in two years. That gave the Fed the room it needed to at least pause for now on interest rates, ending the historic speed with which they have risen. Stocks have been priced for a “goldilocks” scenario – one in which inflation tames and the economy avoids a significant recession. Recent data suggests that just may be possible. It’s still hard to see what future positive catalysts may be for stocks over the near-term, however the recent positivity looks much more likely to be grounded in reality after last week’s events. As for cryptos...
After a brutal week of news in the digital currency space in the previous week as the SEC moved aggressively to crackdown on crypto platforms Binace and the largest, Coinbase, the sector bounced back a bit last week buoyed by a rock... As in Blackrock, as they announced plans for the release of a Bitcoin ETF. After institutional investors had largely turned their backs on digital currencies in recent months, the news provided hope that the recent doldrums could be reversed via legitimacy for the mainstreaming of digital currency investment via Blackrock’s move – including the belief that others will make similar moves to not be outmaneuvered by Blackrock. That’s a lot of speculation, but then again that’s what the entire digital currency space is about anyway.
Bitcoin enters this week sitting above $26,000 – having added about $1,200 last week. Ethereum was lower at $1,700 - losing about $50. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, lost about 8% for the week. 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: 25.53
- S&P 500 avg. PE: 16.01
The downside risk is 36% 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 21% 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.