Stock Market & Crypto Currency Update – September 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: -5% (+2% last week)
- S&P 500: -6% (+2% last week)
- Nasdaq: -13% (flat last week)
Markets finished August strong and had a solid start to September, in what’s historically been the weakest month of the year, on back of news that wasn’t great for the economy but that was interpreted as such. It’s no secret that investors are seeking an end to interest rate increases by the Federal Reserve, and any signs which point in that possible direction are interpreted to be a positive for stocks. That was the case last week with disappointing jobs reports, and an unexpected rise in the unemployment rate from 3.5% to 3.8%, which is the highest since February of 2022 when the US economy was in a technical recession. A contributing factor in the sharp increase in the unemployment rate is attributed to the federal government's continued trend of wildly overexaggerating initial jobs gains only to significantly revise them lower over time. Yet again negative revisions totaling 110,000 jobs came in for June and July, making an already weak month for jobs growth significantly worse. Investors are heavily betting on the Federal Reserve leaving interest rates unchanged later this month, 93%, that’s something to watch, in addition to seasonality trends, in the leadup to the Fed’s decision on rates. As for cryptos...
Digital currencies remained under pressure over the previous week. This is despite what was viewed as a key win within the digital currency space last week, as Grayscale had a legal win in federal court against the SEC which had rejected its effort to convert its Bitcoin Trust into an ETF. This was viewed as a sign the that federal judiciary may find in favor of digital currencies against federal regulators in the future which is central to the base of digital currencies. Bitcoin remains just below $26,000 while Ethereum is hovering just above $1,600. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, shot up 11% on the week on back of the news of the Grayscale legal win. 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: 25.78
- S&P 500 avg. PE: 16.03
The downside risk is 38% based on earnings multiples right now from current levels. That’s higher compared to a week ago as stocks were higher with unchanged fundamentals. 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.