Stock Market & Crypto Currency Update – January 8th, 2024
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 close the DOW, S&P 500 & Nasdaq are to their all-time highs.
- DOW: -1%
- S&P 500: -2%
- Nasdaq: -10%
Rallies can’t last forever and that’s what happened as the momentum trade which brought about the ultimate Santy Claus rally, 9 straight winning weeks for all of the major averages, ended with the first abbreviated week of the new year. Tech stocks, led by Apple, were the weakest to start the year. And while it was a short trading week – it did provide the first significant news that could impact markets going forward. The yearend rally was largely a byproduct of two assumptions, that the Federal Reserve was done raising interest rates (with many further speculating that they’d begin to cut rates during the year), and that the economy could come out of the multi-year inflation crisis with a soft landing – meaning no recession. The news received first in the ADP Report, and then in the government jobs report, was that hiring trends remained stronger than expected through December. At a minimum that could signal that the most optimistic inflation projections, with the fed cutting rates sooner than later, is more likely to be later than sooner. Oil prices could also factor into inflation considerations in the early going this year. After oil prices hit six-month lows in early December, they’ve slowly been climbing higher in part due to the unrest in the middle east which has been hampering normal supply chains as shipping companies are avoiding normal routes of travel due to the threat of attack. Oil prices are 7% higher than a month ago – meaning that the inflation impact from energy is likely heading at least a bit higher than where it's been over the near-term. As for cryptos...
Bitcoin picked up where it left off to end 2023 with gains once again over the past week. Bitcoin was up over $1,500 on the week with prices hovering above $44,000 placing it at levels last reached in April of 2022. Ethereum didn’t perform that same however with a small loss for the week with the price in the neighborhood of $2,000. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies tacked another 4% during the week to also land at the highest price since April of 2022. A key factor during the digital currency rally has been the amount of publicly available bitcoin. Open market inventory for sale is at the lowest level since 2018 creating a supply/demand imbalance which is helping push prices higher. Optimism about regulators further easing restrictions on cryptos – including the adaptation of a direct Bitcoin ETF – remain key catalysts...
Here’s where the stock market stands based on fundamentals using the S&P 500 as benchmark.
- S&P 500 P\E: 25.95
- S&P 500 avg. PE: 16.04
The downside risk is 38% based on earnings multiples right now from current levels. That’s one percent less risk than a week ago with stocks selling off a bit and without a change in fundamentals. It remains the most risk that’s been priced into the market since June of 2021 when the impact of rising inflation was first being felt. It’s 20% less risk than the highs reached during the peak of the pandemic bubble. 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.