Stock Market & Crypto Currency Update – November 27th, 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: -4% (+3% since previous update)
- S&P 500: -5% (+3% since previous update)
- Nasdaq: -11% (+3% since previous update)
I mentioned it at the onset of November and it’s worth repeating as we’re set to close the month out this week... Historically the holiday season brings about the most wonderful time of the year for investors with November and December producing the two best months of the year for stock market returns. While what happens during the final five weeks of the year remains to be seen, November certainly hasn’t disappointed as stocks are generally near 21-month highs with the potential for the DOW and S&P 500 to reach all-time highs if the rally were to continue at the recent pace. The dominant theme driving the rally is the belief that inflation is under control and that the Federal Reserve isn’t just positioned to end its record run of interest rate increases in its effort to combat the highest inflation we’d experienced in over 40 years – but that there will soon be a steady diet of interest rate decreases entering next year. That last piece of the calculous may be a bit presumptuous at this point in the cycle. Nevertheless, optimism has reigned supreme for four weeks and stock prices largely reflect it.
We’ll start off this week with key data coming in from the holiday shopping weekend. Consumer trends have the potential to move the market – given that the US consumer comprises about 70% of the US economy. If sales proved strong through the weekend, additional optimism that we may be able to stave off a recession next year may take hold. If they appear soft, it could stoke those concerns. We shall see...As for cryptos...
The rally has taken a pause, but the recent gains have held for the digital currency space with Bitcoin touching a 52-week high most recently above $38,000, before backing off that price over the weekend to sit above $37k, which is where it’s based over the past two weeks. Ethereum remains over $2,000 and has been flat as well. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, had another big week, reaching the highest levels it’s traded at since January of 2022. This is notable given that news about Binance CEO’s corruption continues to dominate coverage. The space is showing resilience despite the two top exchanges, FTX and Binance, having collapsed due to extensive corruption.
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: 25.19
- S&P 500 avg. PE: 16.03
The downside risk is 36% based on earnings multiples right now from current levels. That’s 2% more risk than two weeks ago as stocks were higher but with fundamentals close to unchanged. It’s 21% 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.