Stock Market & Crypto Currency Update – March 6th
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, however most investors in the crypto space have now lost money on their original investments. 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.
Here's how far the Dow, S&P 500 & Nasdaq are from their record highs:
- DOW: -9% (+2% last week)
- S&P 500: -16% (+2% last week)
- Nasdaq: -29% (+3% last week)
The DOW broke a four-week losing streak and a strong late week rally played out for stocks as the Atlanta Federal Reserve President indicated quarter point interest rate increases are the most likely path forward. With inflation data having continued to run super-hot in recent weeks investors were suspecting higher increases were in the offing. And with earnings season behind us, this is the type of news that’ll continue to drive the market this week. The Fed and interest rate considerations. And the biggest news driver on that front this week will come at the end of it. Much of what will be will come down to jobs. Wednesday’s ADP Report and Friday’s government jobs report will have a lot to say with where the major indexes will be by the end of the week.
Something which isn’t receiving much attention but probably should is what’s happened with the Atlanta Federal Reserve’s GDP Now tracker. As week ago, they had first quarter growth pegged at 2.7%. Today it’s down to 2.3%. That’s a big one-week drop in expected economic output. And while slower economic growth could mean fewer and lower interest rate increases, it’s obviously not the best news economically. I’ll be closely watching the trend through month’s end. As for cryptos...
It was another week with yet another major event rattling the realm of digital currencies. Silvergate Capital, which operates one of the most significant crypto currency banks, issued a warning about their ability to operate going forward. What’s called a “going concern” disclosure. Not only does Silvergate play a prominent role in facilitating many digital currency transactions, but many digital currency traders were also big investors in the bank which has fallen from a stock price of $239 per share in late 2021 to under $6 today. The net effect of the event sent digital currency prices lower across the board for a second straight week.
Bitcoin lost about a $1,000 or 4% after hitting fresh six-month highs and is now sitting near $22,000. Likewise, Ethereum gave up 3% and is back below $1,600. The Bitwise ETF, which represents the top 10 cryptocurrencies, was also off about 3% for the week. I can’t provide valuation analysis on any of them because they retain no inherent value. As for stocks which do...
Here’s where the stock market stands based on fundamentals using the S&P 500 as benchmark.
- S&P 500 P\E: 21.63
- S&P 500 avg. P\E: 15.99
The downside risk is 26% based on earnings multiples right now from current levels. That’s one percent more risk than a week ago as stock prices rose slightly while fundamentals were static, however it’s 31% less risk than the highs reached last year. I don’t expect an additional 26% decline, however in theory, it’s possible if the near worst case outcomes occurred. 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.