How Low Can Stocks & Crypto Currencies Go? January 13th, 2025

How Low Can Stocks & Crypto Currencies Go? January 13th, 2025 

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.          

Let’s start with a look at how the DOW, S&P 500 & Nasdaq have performed year to date: 

  • DOW: -1% (-2% last week) 
  • S&P 500: -1% (-1% last week) 
  • Nasdaq: -1% (-1% last week) 

All major indexes are negative for the new year following last Friday’s stronger than expected jobs report showing over 250,000 jobs added in December with the unemployment rate dropping to 4.1%. The report spooked investors who’re concerned that a potentially stronger than expected labor market to start the year will lead to the Federal Reserve leaving interest rates higher longer. Inflation and the Federal Reserve's interest rate policy have weighed heavily over market sentiment for years now. It’s more of the same to start 2025...that is with two significantly different considerations. First, markets and stocks remain high and historically expensive. Still, that’s been the case for about a year now and the markets plowed higher last year posting big gains anyway. The major catalyst that’s still providing optimism for many, even with elevated prices is the change at 1600 Pennsylvania Ave. taking place a week from today. It's expected the incoming administration will quickly eliminate 970 new business regulations imposed by the Biden administration that came at a cost of $1.7 trillion.  

As for cryptos...  

The selloff in the financial markets extended to cryptos with Bitcoin lower by 2% over the past week. Similarly Ether dropped 4% last week as well. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies sold over the most dropping 7% last week. 

Gold, meanwhile, was the one winner posting 3% gains to trade back above $2,700 an ounce. I can’t provide value analysis for digital currencies because they retain no inherent value, but I can for stocks because they do. On that note...      

Here’s where the stock market stands based on fundamentals using the S&P 500 as benchmark.                                                               

  • S&P 500 P\E: 29.72 
  • S&P 500 avg. PE: 16.12                                                             

The downside risk is 46% based on earnings multiples right now from current levels – 1% lower than a week ago based on lower stock prices and similar fundamentals. We have a cycle with the most fundamental risk that’s been priced into the market since April of 2021 when the impact of rising inflation was first being felt. For perspective, the pandemic cycle is the only time valuations have been this high over the past decade and prior to this cycle, you’d have to go back to the Great Recession in ‘08- ‘09 to find prices this high on a fundamental earnings basis.       

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. 


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