Stock Market & Crypto Currency Update – October 16th, 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: -9% (flat last week)
- S&P 500: -10% (flat last week)
- Nasdaq: -17% (-1 last week)
Despite the extraordinary news cycle highlighted by the Hamas terror attack on Israel and the subsequent war and CPI and PPI reports which came in stronger than expected...markets were essentially flat on the week. If it seems odd that we could have both inflation gauges running hotter than expected, which would usually indicate that a Federal Reserve response, a la another rate increase, could be coming and yet still rather flat trading activity for stocks... There is a bit of logic behind the moves or lack thereof. The general belief in the financial markets, which may or may not prove true, is that the war and all of the uncertainties that come along with it, will give the Fed additional pause before thinking of pulling the trigger on an additional interest rate increase.
The inverted yield curve and historically high interest rates which can be obtained through government treasuries continue to be headwinds for markets as well. The bottom line is that the ability to earn a rather safe 5% or so in government bonds has created strong competition for money that’d otherwise flow towards stocks. In other words, there are a lot of influences factoring into market decisions daily that are unusual. Something to watch near term will be oil prices. They surged last week including Friday being the strongest day for oil price gains since April. Their impact on inflation and an already stretched consumer matters considerably. As for cryptos...
Digital currencies were largely flat to lower last week. Bitcoin is back below $27,000 and Ethereum once again below $1,600. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, was flat. Digital currencies remain range bound. 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: 24.71
- S&P 500 avg. PE: 16.03
The downside risk is 35% based on earnings multiples right now from current levels. That’s flat with a week ago as stocks were slightly lower with largely unchanged fundamentals. It’s 22% 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.