Stock Market & Crypto Currency Update – January 16th, 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: All-time high
- Nasdaq: -7%
The Wall Street winning streak may have been snapped with the first week of the year, however it took hold once again with the second, and first full, trading week of the year with also coincided with the onset of earnings season as well. With weekly gains in 9 out of the past 10 weeks, which has led to the DOW and S&P 500 seeing new highs, the stakes are raised with this earnings reporting season. One of the early storylines at the onset of earnings season is corporate layoffs. The past week featured a slew of companies, many of which are household names, a la Google and Citi Bank, announcing some of the largest layoffs in their corporate histories. That may be good for stock prices over the short term, as estimated cost savings can add to the bottom line, however it could also be a sign of what’s to come which could include the prospect of a recession. On that note, despite the myriad of world events that can impact big businesses and the global economy, the Conference Board found that the biggest concern of CEOs at the onset of the year is the potential for recession. Only 37% of CEOs feel as though their companies are fully prepared for a recession if it were to occur. What that means is that nearly two-thirds of companies could face significant fallout and changes from here if there were to be an economic decline. That’s worth watching, though economic data has remained rather strong suggesting that it still may be possible to have a soft landing which is largely priced into the market.
As for earnings season...through Friday 6% of companies had reported and the survey shows...we are off to a slightly negative start. Earnings are lower year-over-year for the companies that have reported by just under 1%. That’s worth watching closely as we wade into the meat of the reporting season over the next couple of weeks. As for cryptos...
Bitcoin investors got the news they’d long been waiting for with the SEC greenlighting “spot” ETFs for bitcoin – meaning investors who don’t want to have to worry about directly buying and holding bitcoin can now do so through a variety of ETFs which can be purchased like stocks for small ongoing fees. The belief has been by bitcoin bulls that this would bring in a new class of crypto investors who are interested in putting some money into digital currencies but that don’t want to have to have the responsibility of directly holding it in a digital wallet. After a short bounce on the news of the ETF approval, it quickly and predictably, became a “sell the news” event leaving Bitcoin lower on the week.
Bitcoin lost about $2,000 on the week with prices hovering above $42,000. Ethereum performed better, however, with a gain of close to $300 for the week with the price in the neighborhood of $2,500. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, was crushed on the week with large losses of close to 20% as there’s a belief that the new competition with pure play bitcoin ETFS will take attention and money away from the previously existing ETFs that spread investor money around the crypto space. I can’t provide any value analysis for digital currencies because they have 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: 25.96
- S&P 500 avg. PE: 16.04
The downside risk is 38% based on earnings multiples right now from current levels. That’s flat with 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.