Stock Market & Crypto Currency Update – October 30th, 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: -12% (-2% last week)
- S&P 500: -14% (-2% last week)
- Nasdaq: -21% (-2% last week)
As we head down the homestretch of October, we do so with stocks set to post a second straight month of losses. The selling has left all three major indexes in at least correction territory, (a decline of 10% or more from highs), with the Nasdaq technically entering bear market territory (a decline of 20% of more) once again. A combination of lack luster earnings, ongoing inflation pressures and strong bond market moves have continued to weigh on stocks. Speaking of earnings...
While the US economy hasn’t been in a technical recession since the first half of last year, we’re very much mired in an earnings recession for corporate America with three consecutive quarters of negative earnings growth. Through Friday, with 49% of companies reporting, earnings were pacing an increase of 2.7%. The good news, if growth holds, is that there would be positive earnings growth for the first time since the 3rd quarter of last year. The not-so-good news is the extent to which earnings continue to lag. If you don’t feel as though your personal economy is performing as well as the US economy theoretically has been, with 4.9% growth in the 3rd quarter most recently, it’s not just you. It’s corporate America too. Earnings growth is only about half of GDP growth. As we head towards November, we head towards what’s typically a friendly window of time in the stock market. November and December typically are the two best months of the year for stocks. In the years when we’ve had yearend declines, it’s been a recessionary sign. Stocks are often thought of as a leading economic indicator. Price movements entering these final two months could tell you where the economy is headed, one way or another, early next year. As for cryptos...
For the second straight week bitcoin boomed while stocks struggled as digital currencies have posted their best gains in five months. Bitcoin‘s move back above $30,000 a week ago was backed up with another weekly gain of 10% leaving it above $34k touching a 52-week high most recently. Ethereum posted a 5% gain to hit back above $1,700. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, posted the biggest gains of all up about 12% on the week, reaching a new 52-week high in the process. Optimism about regulators potentially allowing additional crytpo ETFs to hit the market – including a spot bitcoin ETF, continues to drive performance. Additionally, the amount of publicly available bitcoin is at the lowest level since 2018 creating a supply/demand imbalance which is helping push prices higher. Questions remain about the regulatory environment – but the cloud over the sector from that perspective seems to be lifting a bit. 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: 23.5
- S&P 500 avg. PE: 16.03
The downside risk is 32% based on earnings multiples right now from current levels. That’s 2% lower than a week ago as stocks were lower but also with a slight improvement in fundamentals over the prior week. It’s 25% 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.