How Low Can Stocks & Crypto Currencies Go? March 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: +3% (+1% last week)
- S&P 500: +1% (-1% last week)
- Nasdaq: -2% (-4% last week)
A late rally on Friday led to a mixed market for the week, with the DOW eeking out gains but with steep losses for the tech-heavy Nasdaq – which is now negative on the year. While the Oval Office showdown between Zelenskyy and Trump grabbed headlines – the fact of the matter is that Friday’s rally took place following the drama. The news that perhaps mattered most last week, as it pertains to market performance, is that the Atlanta Federal Reserve’s GDP Now tracker brought its estimated economic growth rate down to 1.5% for the first quarter – in what was the latest sign of slowing economic growth. Also, an inverted yield curve occurred during the week which can indicate a recession is on the horizon (though it hasn’t had a predictive track record for the past two and a half years). The use and potential continued use of tariffs by President Trump will continue to remain in focus as well.
Market sentiment has cooled and even a better-than-expected earnings report from Nvidia last week couldn’t save sentiment. The ying-yang effect to watch in the market over the next little bit will be reading economic tea leaves and reading the Fed. A potentially weaker than previously expected economy may led to the Federal Reserve once again reconsidering interest rate policies and specially whether to cut rates earlier in the year than they have foreshadowed previously.
As for cryptos...
Digital currencies struggled for a sixth straight week following the massive post-election Trump rally. President Trump, a crypto advocate, has announced the creation of a strategic crypto reserve that will include bitcoin, ether, XRP, Solana and ADA. Bitcoin had its worst week of the year entering bear market territory (a decline of 20% or more from highs) in the process. Bitcoin entered today down 9% now for the year. What wasn’t good for bitcoin was worse for the others. Ether is now 34% lower on the year – with about half of the loss over the prior week. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, was 15% lower for the week and is 23% lower on the year. The risk off trade has certainly hit the riskiest assets the hardest.
I can’t provide any value analysis for digital currencies because they retain 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 the benchmark.
- S&P 500 P\E: 29.79
- S&P 500 avg. PE: 16.13
The downside risk is 46% based on earnings multiples right now from current levels –that’s similar to a week ago as stock prices declined while fundamentals also slightly declined. 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.