How Low Can Stocks & Crypto Currencies Go? January 21st, 2025

How Low Can Stocks & Crypto Currencies Go? January 21st, 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: +3% (+4% last week)  
  • S&P 500: +2% (+4% last week)  
  • Nasdaq: +2% (+4% last week)  

Last week was the best week for stocks since the week of President Trump’s election win in November. As Donald Trump begins his first full day of his second term as president of the United States optimism once again reigns supreme about what his administration will bring for the US economy. It's expected the Trump administration will quickly eliminate 970 new business regulations imposed by the Biden administration that came at a cost of $1.7 trillion to American businesses during his four years in office.  

Key to last week’s rally for stocks and crypto currencies was the December Consumer Price Index Report which showed consumer inflation pacing at 2.9% entering 2025 – a number that was in line with expectations (though inflation remains higher than the Federal Reserve’s target 2% rate). As Trump settles in this week potential tariffs and trade policies will be in focus. Notably, among the dozens of executive orders signed yesterday, the implementation of new tariffs wasn’t among them.  

As for cryptos...   

While the rally for stocks was strong. It’s been prolific in the digital currency space. President Trump, a crypto advocate, launched his own “Official Trump” digital currency recently as did First Lady Melania Trump under the “Melania” name. This has helped the crypto rally that’s been in place since Election Day to find another leg. Bitcoin is now 12% higher for the year trading at a record above $105,000. Ether has participated however as it’s slightly lower on the year around $3,340. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies is now 7% higher on the year. 

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

  • S&P 500 P\E: 30.63 
  • S&P 500 avg. PE: 16.12                                                              

The downside risk is 47% based on earnings multiples right now from current levels – 1% higher than a week ago as stock prices rose a bit faster than 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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