Stock Market & Crypto Currency Update – September 18th, 2023
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: -6% (flat last week)
- S&P 500: -7% (flat last week)
- Nasdaq: -15% (-1% last week)
It was a wild week of volatility for what ended up being a market that was essentially flat to slightly lower. The Consumer Price Index came in hotter than expected accelerating for a second straight month, likewise the Producer Price Index was higher than anticipated too. Still, investors for the most part are convinced the Federal Reserve won’t raise interest rates in response this week – even if they might in November. In real-time the news isn’t getting better. Gas prices are once again on the rise from what was already a high base price as oil has hit its highest levels since November of last year above $90 per barrel. It’s the Fed’s announcement which be the focal point of the financial markets this week. The inverted yield curve (or when short term bonds come with more favorable yields than longer duration bonds), which historically has been a recession predictor, has become even more exaggerated in recent days with three-month government Treasuries yielding more at times than a 10-year bond. There’s also the UAW strike which has the potential to negatively impact the economy around the margins. It’s a weird set of circumstances in the financial markets for sure and it’s one that’s increasingly creating pause for many investors until they can better get a handle on what’s happening and where this economy is going. As for cryptos...
Digital currencies had their best week in a couple of months with Bitcoin rising back above $26,000 and Ethereum back above $1,600. Meanwhile, the Bitwise ETF, which represents the top 10 cryptocurrencies, was higher by about 6%. The big news during the week was the legal go ahead for disgraced crypto firm FTX to begin to liquidate its remaining holdings. The initial reaction was negative with a fear of the market being flooded with tokens, however FTX has adopted a plan to slowly unwind the tokens onto the market that allowed for a relief rally. Will it hold? Questions about regulation remain. Will the federal government seek to compete with the current crypto players, or will they allow the digital currency space to evolve as it is? I can’t provide value analysis for cryptos 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 benchmark.
- S&P 500 P\E: 25.45
- S&P 500 avg. PE: 16.03
The downside risk is 37% based on earnings multiples right now from current levels. That’s flat with a week ago as stocks were flat with unchanged fundamentals. It’s 20% less risk than the highs reached last year. 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.