How low can stocks go? Updated risks and values for 3-28-17:
Bottom Line: In case you're new to this series, 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. Too often when we have a rare short-term downturn in the markets - it's too late to offer up information that might have been helpful ahead of time. This week's edition of "how low can stocks go" goes as follows...re the Dow, S&P 500 & Nasdaq stand against their all-time high levels:
- DOW: 2%+ from highs - down vs. a week ago
- S&P 500: 2%+ off of all-time high - down vs. a week ago
- Nasdaq: 1%+ off of all-time high - down vs. a week ago
The past week was easily the worst week for stocks under the young Trump administration. The combination of high valuations for stocks after a historic run post November's election & the inability to advance the GOP healthcare bill brought about selling. The Dow now actually has it's longest losing streak (8 consecutive down days) since 2011.
As far as how low stocks could go...If only market fundamentals mattered here's what we'd want to consider with regard to the S&P 500 for example.
- S&P 500 P\E: 26.28
- S&P 500 avg. P\E: 15.65
The downside risk is 40% based on earnings multiples right now from current levels. That's about a 1% improvement from a week ago. Now, as always, I don't expect that type of selloff to occur but its always important to ensure that you are positioned for negative adversity. If a short-term decline at the aforementioned levels wouldn't affect your day-to-day life, you're likely well positioned to continue to take advantage of investment opportunities. If that size of selloff would rock your world over the short-term, that's when you should probably seek professional assistance in crafting your plan (that balances your short-term needs with long-term objectives).