How Low Can Stocks & Crypto Currencies Go? – March 4th, 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. 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: All-time high
- S&P 500: All-time high
- Nasdaq: All-time high
What a finish to the week it was with records highs for stocks being achieved with the big three indexes. While the DOW and S&P 500 had regularly touched record highs in recent months – the tech heavy NASDAQ had yet to make up for the lost ground from the bursting of the pandemic induced technology bubble. Now it has. The story for stocks most recently has been a continuation of AI induced enthusiasm. There’s a belief by many investors that we’re entering a new era for technology driven growth a la the advent of the consumer internet age in the 90’s. Notably, while enthusiasm was running high for technology companies, investors overlooked another potential shoe that could drop in the banking space.
New York Community Bancorp, due to a mix of poor corporate governance – that just led to the replacement of the CEO and other top executives – and exposure to New York commercial real-estate, has led to a crash in the stock price of the bank. Most recently the bank had $83 billion of deposits. There are many eyes on what happens next following a 65% decline in share price year-to-date as we get started this week. It’s been just about a year since last year’s mini-banking crisis and NYCB could have the potential to trigger another if it were to fail. Meanwhile for cryptos...
It was another big week for digital currencies, especially bitcoin, as it hit multi-year highs back above $62,000 – adding close to $20,000 in value over the past month. It’s safe to say the bitcoin bulls are back in a big way. Sovereign debt concerns in addition to the possibility of the federal government creating its own central bank digital currency continue to provide reasons for those who’re inclined to funnel money into digital currencies. While bitcoin is and has been the poster child for the space, the gains have come across the board. Ethereum is back above $3,400. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, is back to 23-month highs. 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: 27.88
- S&P 500 avg. PE: 16.05
The downside risk is 42% based on earnings multiples right now from current levels. That’s higher than a week ago as stock prices continue to rise faster than fundamentals. It remains the most fundamental 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. The bottom line is that the market is somewhat historically expensive at these levels. Still, 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.