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: Record high
S&P Record High
Nasdaq: Record High
What a year and what a ride it's been for stocks and continues to be.
The Trump bump.
Lower regulation.
Record earnings.
Low inflation.
New highs set with regularity.
All of this without even getting healthcare or tax reform (yet). In fact, the DOW is now at a record completed 56 consecutive days without a 1 percent decline for the first time since 1930!
All of this might be enough to make you nervous but consider this. Fundamentals have still performed better than stock prices. In other words, there's less risk in the stock market today than on January 1st.
The Dow is up 19.2 percent in 2017, the S&P 500 is up 15.8 percent & the Nasdaq has been the biggest winner up by 26.1 percent.
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: 25.84
S&P 500 avg. P\E: 15.68
The downside risk is 39 percent based on earnings multiples right now from current levels.
That's still about 1 percent less risk than entering 2017 despite stocks having appreciated so significantly this year already. 2017 is proving the power of improved earnings. With the super-strong growth year over year, stock prices are meaningfully higher as compared to the start of 2017, yet risk has actually declined because fundamentals have improved faster than prices have risen.
If a short-term decline 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).