How Low Can Stocks & Crypto Currencies Go? February 3rd, 2025

How Low Can Stocks & Crypto Currencies Go? February 3rd, 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: +5% (+1% last week)  
  • S&P 500: +3% (+1% last week)  
  • Nasdaq: +2% (+1% last week)  

We had a choppy but still positive week for stocks to close out January and mark yet another winning month for the major indexes to leave stocks close or at record highs. Historically when stocks rise in January, they finish higher for the year 75% of the time. 

Last week’s news focused on three themes. 1) The Fed 2) Earnings 3) Trump policy. The Federal Reserve left interest rates unchanged last week – despite President Trump’s call for lower rates – as the rate of inflation hasn’t decreased for three consecutive months. Corporate earnings, which featured big tech names last week, remained strong. With 36% of companies reporting, 77% have exceeded expectations with earnings growth pacing 13% - the highest since the 4th quarter of 2021 as companies began recovering from COVID lockdowns. As for Trump policy...  

Over the weekend President Trump placed 25% tariffs on imports from Canada and Mexico – excluding energy – which comes with a 10% tariff. China was also issued a 10% across the board tariff. News this would happen led to a Friday selloff and should dominate conversation on Wall Street as trading kicks off this week.  

As for cryptos...   

Digital currencies were generally lower for a second consecutive week following the massive post-election Trump rally. President Trump, a crypto advocate, launched his own “Official Trump” digital currency recently as did First Lady Melania Trump under the “Melania” name. The administration has already signed an executive order for the purpose of creating a digital currency reserve for the US Treasury and has begun rolling back related regulations. Bitcoin is 4% higher for the year trading back below $100,000. Ether hasn’t participated and is now 9% lower on the year. 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: 30.18 
  • S&P 500 avg. PE: 16.12                                                              

The downside risk is 47% based on earnings multiples right now from current levels – flat with a week ago as fundamentals improved faster than stock prices for a second consecutive week. 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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