Stock Market & Crypto Currency Update – September 19th, 2022
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: -17% (-4% vs week ago)
- S&P 500: -20% (-4% vs week ago)
- Nasdaq: -29% (-5% vs a week ago)
There were no inflation celebrations on Wall Street last week as the market had its worst week since June leaving the S&P 500 on the precipice of bear market territory (a decline of 20% or more) and all major indexes threatening to retest June’s lows. Last week’s inflation report assures an already aggressive Federal Reserve will most certainly follow through with another significant increase in interest rates in this week’s meeting. But inflation acceleration wasn’t the only unwanted news last week. FedEx released earnings on Thursday which were significantly below expectations and the company warned about lower revenue and earnings going forward. Lest one think it was a company specific issue, FedEx’s CEO said... We’re seeing that volume decline in every segment around the world, and so you know, we’ve just started our second quarter The weekly numbers are not looking so good, so we just assume at this point that the economic conditions are not really good. We are a reflection of everybody else’s business, especially the high-value economy in the world. And with that he warned of a worldwide recession. If you’re an investor the good news is there’s already a ton of bad news out there which probably helps limit the downside. The bad news is there’s no good news right now, and no clear indication of when there might be. As for cryptos...
Bad news for stocks has consistently meant worse news for cryptos. That was very much the case last week. Bitcoin was off over ten percent last week and is back below $20k. Ethereum, which had held up the best of any of the digital currencies, fell apart last week dropping 17% leaving it below $1,300. The Bitwise ETF, which represents the top 10 cryptocurrencies, dropped about 12% over the past week as well. In a risk off environment cryptos are the most speculative place to park money of all and the price action continues to reflect it.
Here’s where the stock market stands based on fundamentals using the S&P 500 as benchmark.
- S&P 500 P\E: 19.57
- S&P 500 avg. P\E: 15.98
The downside risk is 18% based on earnings multiples right now from current levels. That’s 4% less risk than a week ago and 39% less risk than the highs reached last year. There’s less risk in the market this week because stock prices declined faster than fundamentals. I don’t expect an additional 18% 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 long term objectives.
Photo: Getty Images