Stock Market & Crypto Currency Update – July 10th, 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: -8% (-1% last week)
- Nasdaq: -15% (-1% last week)
Last week’s abbreviated trading week for stocks to kick off the second half of the year was full of action. Investors had commentary from Federal Reserve officials indicating interest rates are likely to be heading higher in July’s meeting after pausing with rate increases in June. We had a blowout ADP Private Sector Jobs report on Thursday followed up by a disappointing government jobs report on Friday. After significant first half gains for stocks despite economic headwinds like a banking crisis, we could have had our first indication that stocks aren’t likely to continue to see the steady increases that we saw through the first half of the year. Both good news and bad news were met with selling last week. Not a lot of it in the big picture, however it was a clear divergence from what we saw during the first six months of the year. This week attention will flip back to towards corporate earnings as the season is set to kick off with high profile earnings reports from JP Morgan Chase and the airlines. As for cryptos...
Bitcoin & digital currencies generally were off a bit last week. This came after the recent runup in cryptos – especially bitcoin, on the back of numerous Wall Street firms announcing ETFs for digital currencies. Importantly from a psychological perspective bitcoin held the $30,000 threshold while Ethereum is sitting just under $1,900. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, was essentially flat. Questions about regulation remain. Will the federal government seek to compete with the current crypto players, or will they allow the digital currency space to evolve as it is? 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: 25.46
- S&P 500 avg. PE: 16.02
The downside risk is 37% based on earnings multiples right now from current levels. That’s 1% less risk than a week ago as prices were lower with fundamentals unchanged. It’s 20% 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.