Stock Market & Crypto Currency Update – June 26th, 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% (-1% last week)
- S&P 500: -9% (-1% last week)
- Nasdaq: -16% (-1% last week)
The winning streak on Wall Street was snapped last week with fairly consistent losses across the board during the abbreviated trading week. The biggest market moving news came in the form of Federal Reserve Chairman Jerome Powell's commentary emphasizing that June's decision not to raise interest rates was just a pause and not the end of the interest rate raising cycle. With inflation still running at double the rate of what the Federal Reserve target rate is at 2%, and with core inflation running hotter than the most recent overall inflation rate, Powell is preparing investors for still higher rates to come. Otherwise, as investors are looking for market moving catalysts with markets that have been at 15-month highs, there are renewed concerns about a US and perhaps global recession. The concerns aren't new, however most economists had anticipated the impact of a likely recession for the second half of this year, and while recession concerns have abated a bit with rosier than expected economic data throughout much of the first half of this year, we're obviously about to enter the back half where many more economic concerns exist. Something that's also in focus are corporate defaults. Corporate defaults have run at double the rate of the first half of last year and are currently the highest since 2010 - during the Great Recession. With rates set to go still higher with an economy that at a minimum is expected to be weaker in the back half of the year than the first half - corporate default rates are expected to remain the highest in over a decade. As for cryptos...
The recent regulatory headaches in the digital currency space were set aside for at least a week as Blackrock's commitment to a Bitcoin focused ETF a couple of weeks ago sent Bitcoin 17% higher last week to sit above $30,000. The belief by crypto bulls is that bad and questionable actors like FTX and Biance are being wiped out which will create more credibility in the space. That remains to be seen but there's no doubt that it took hold last week. Ethereum added $200 to sit at $1,900. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, added about 10% for the week 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: 25.17
- S&P 500 avg. PE: 16.01
The downside risk is 36% based on earnings multiples right now from current levels. That’s 1% less risk than a week ago as stocks fell 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.