Stock Market & Crypto Currency Update – November 6th, 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% (+5% last week)
- S&P 500: -9% (+5% last week)
- Nasdaq: -16% (+6 last week)
It was the best week of the year for stocks as investors weighed the Federal Reserve’s decision not to raise interest rates, earnings and a weak jobs report. The result was consensus thinking that the Fed may be done raising interest rates which trumped all after three consecutive months of losses for stocks. Seasonally November and December are the two best months of the year for stocks. We’re off to a strong start towards that holding again this year. As for the meat and potatoes of data that poured in last week let’s start with earnings...
Through Friday, with 81% of companies reporting, earnings were pacing an increase of 3.7%. Two notes. First, earnings have been trending upward throughout the reporting season and that’s the best growth yet during the Q3 reporting season. Second, it appears to be a given that after three consecutive quarters of negative earnings reports companies will have finally returned to growth for the first time in a year. That’s the most important metric of all for sustaining higher stock prices going forward. That said the jobs report was anything promising fundamentally. Not only was the headline number, with 150,000 jobs added during October weak, the net number was much worse. There were negative jobs revisions totaling 101,000, which I predicted when last month’s number was reported, making the net number of new jobs just 49,000 for the month which was the weakest since the pandemic-induced recession. The market’s sugar high from the thought of the fed ending interest rate hikes will be short-lived if the economy tips into a recession which Friday’s job’s report shows is a possibility with any additional weakening. As for cryptos...
For a third straight week optimism reigned as regulation seems more favorable for the space. Bitcoin after touching a 52-week high most recently, bitcoin added another $1,000 to sit above $35,000. Ethereum added about $100 and is closing in on $1,900. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, rose another 4% on the week, reaching a new 52-week high in the process. Optimism about regulators potentially allowing additional crytpo ETFs to hit the market – including a spot bitcoin ETF, continues to drive performance. Additionally, the amount of publicly available bitcoin is at the lowest level since 2018 creating a supply/demand imbalance which is helping push prices higher. Questions remain about the regulatory environment – but the cloud over the sector from that perspective seems to be lifting a bit. 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: 24.08
- S&P 500 avg. PE: 16.03
The downside risk is 33% based on earnings multiples right now from current levels. That’s 1% more risk than a week ago as stocks were higher but with fundamentals which improved as well. It’s 24% 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.