Stock Market & Crypto Currency Update – July 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: -7% (+1% last week)
- S&P 500: -7% (+2% last week)
- Nasdaq: -14% (+2% last week)
The second half of the year picked up where the first half left off – with green across the board. While the major stock market indexes remain well below their all-time highs of a year and a half ago, there’s no doubt stocks have successfully climbed the wall of worry to date. Banking crisis, no problem. Historically aggressive interest rate increases to combat historically high inflation, no problem. Fears of a second half recession, no problem. The Nasdaq, while still in correction territory, posted especially impressive gains through the first half of the year with the indexes' best first half in exactly forty years. The question now becomes...what’s next?
Projections for the next recession are still high. There’s a projected 71% chance of recession according to the forecasts of economists between now and next May, however there’s now a little less than 50% chance of a recession between now and the end of the year according to the same forecasts. That’s a considerable change from a few months ago when more than two-thirds of economists were baking a second half recession into the cake. Time will obviously tell, but the biggest difference in the pricing of stocks entering the second half of the year is that stocks went from having the likelihood of a recession priced into their valuations, to now perhaps not. What that means is that there’s generally still some upside if we avoid recession, there’s more risk to the downside than before if we don’t. Key jobs reports this week from ADP tomorrow and the BLS on Friday will be closely watched for signs of where we stand starting the second half of the year economically. As for cryptos...
The recent regulatory headaches in the digital currency space were set aside for a second straight week as the bitcoin bounce continues following Blackrock's commitment to a bitcoin focused ETF recently led to a surge in related offerings by other big investment firms. The added legitimacy to the digital currency space has led to higher prices in anticipation of greater investor participation through the use of ETFs going forward. Bitcoin has risen another $1,000 to $31,000. Ethereum added $50 to sit at $1,950. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, hit three-month highs adding around another 5% 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: 25.79
- S&P 500 avg. PE: 16.01
The downside risk is 38% based on earnings multiples right now from current levels. That’s 2% more risk than a week ago as stocks rose, and fundamentals were flat. It’s 19% less risk than the highs reached last year. 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.