How Low Can Stocks Go? Updated Risks & Values For September 20th, 2021

Markets Slip Despite Strong Retail Sales Report

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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. I want you to benefit from it without making emotional mistakes with money. 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. My first rule of money is to never let your money and emotions cross paths. That’s what this is about, an analytical evaluation of the stock market. 

Here's where the Dow, S&P 500, and Nasdaq stand against their all-time high levels:

  • DOW: 3% off recent highs
  • S&P 500: 2% off recent highs
  • Nasdaq: 2% off recent highs

Stocks were flat last week, which was an improvement over the previous two weeks. September is historically the worst month for stock market performance. With an average annual loss of nearly 1%, it’s been the most likely time for corrections or even bear markets to occur. With markets having rallied hard this year, the S&P 500’s total return is 19% year-to-date, and valuations rather pricey from a historical perspective, many investors have started taking some money to the sidelines. Especially given the concerns regarding COVID variants, unknowns regarding vaccine duration and efficacy against all variants along with a slowing US economy. 

On the other side of the coin, just as Florida led the country’s trend higher with new COVID-19 cases during the summer surge, Florida’s leading the country lower as we’re about to officially close out summer. The bottom line is this. There are reasons to pull money off the table if you’re looking for them, but otherwise, there are pockets of value with overlooked companies who’ve been overshadowed much of this year, like financials, which produced the best returns of any industry last week. Many investors who don’t want to get out of the market are diversifying with more defensive value plays. 

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