I brought a dead horse to the newsletter today — in hopes that you would allow me to beat it yet another time.

Our regular readers (all of whom are deeply appreciated) will have noticed our modest propensity to recoil at the never ending onslaught of financial news that portends TEOTWAWKI or The End of the World as We Know It. One might even think that some of the stuff is written by Chicken Little himself!

Well. I am happy to say that we are not alone in our annoyance.

Our friend Greg Morris is a financial writer and brilliant technical analyst. He shared some thoughts in a recent piece at Stockcharts.com and he has allowed us to forward some of his points to you. Here’s Greg:

Many investors are fearful of the next market crash. When will it happen? How big will it be? Will my retirement savings be at stake? 

These concerns are certainly understandable, considering that the 2008 Financial Crisis is still visible in the rearview mirror. But, it turns out that investors are a lot more worried than they should be. If we define a stock market crash as a single-day event where the market precipitously falls, we find that these crashes are actually quite rare. Looking at declines in the magnitude of the October 1987 drop (-22.61%) or “Black Monday” in October 1929 (-12.82%), Yale researchers William N. Goetzmann and Robert J. Shiller along with Case Western Reserve’s Dasol Kim, found that there is a less than 1 percent probability of an extreme stock market collapse in any six-month period. 

With that in mind, the next statistic might surprise you… 

Since 1989, those researchers (Shiller in particular) have been tracking the judgments of individual and institutional investors on the probability of a severe market crash. In other words, over the past two-plus decades he’s been asking investors if they think a stock market crash is likely ahead. 

From all the data that he collected, he found that investors, on average, said there was a 19% chance of a one-day market crash in the next six months. This means that investors pegged the likelihood of a crash at 20 times the historical precedent. 

So, are investors twenty times more paranoid than they should be? Or is something pushing them in that false direction? Greg wondered about this:

The researchers were curious where this additional concern/fear was coming from, and their argument here might not surprise you at all – they cited the negative influence of the news media on investor behavior. The researchers argue that journalists can “frame recent events through selective reporting – emphasizing negative outcomes.”

He also pointed to some of the same examples that we have given in recent months:

As has been the case for most of the last eight years, many of the fearful headlines have not amounted to much. China’s hard landing? Forgotten. Europe’s sovereign debt crisis? Not as bad as many expected. Brexit? The markets rallied in the months after it. You can go on and on, and in each of those cases there was a slight hysteria in the financial news media, but the stock market found a way to keep climbing. I’d expect the same to be the case moving into 2018. 

Our friend, Mr. Morris unsurprisingly ends with a recommendation:

Avoid snap judgments and watch less financial news! 

We agree! Of course, neither Greg Morris or ourselves are suggesting that you not keep abreast of things that may go bump in the night, or in your portfolio. But, as you gather and consume what is dished up each day by the media, remember that they are just possibly trying to make things seem a little more dramatic than is probably deserved.

Market Minute 1/26/2018 – Another Day, More Market Records

This brings back memories of 2009, which is the last time I remember seeing ‘up’ markets on (seemingly) almost every day. And yesterday — which was little changed — we still saw new records for both the Dow and S&P Indexes*. As I write this all major indexes are up today again. 

Earnings season has been terrific so far — adding encouragement to stock investors. As a matter of fact, not even a government shutdown phased the markets.

Leading Indicators rose more than anticipated gaining 0.6% vs. the prior month’s 0.5%.

And overall, we continue to see more confirmations of a strong economy which of course provides buoyancy to further lift the historic bull market. Noteworthy is that the strength is not confined to our shores – many international markets are doing very well too.

Please remember that this is not a ‘new normal’. But, it is not the ‘old normal’ either. This week marks the 10th ‘up’ week in a row for market averages. So, enjoy it while it lasts. We continue to believe this will be another strong year for stock investors, but there will most certainly be some ‘down’ weeks, we just don’t know when they will be. 

Enjoy your weekend. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051

Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at lindaw(at)denkinvest.com. If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation. Information in this commentary is the sole opinion of Denk Strategic Wealth Partners. Past performance is no guarantee of future returns. All market related investments involve various types of risk, which include but are not restricted to, credit risk, interest rate risk, volatility, going concern risk, and market risk.

The Update provides information of a general nature regarding legislative or other developments. None of the information contained herein is intended as legal advice or opinions relative to specific matters, facts, situations or issues. Additional facts, information or future developments may affect the subjects addressed in this document. You should consult with an attorney, accountant or DSWP planner about your particular circumstances before acting on any of this information because it may not be applicable to your situation.

Lincoln Financial Securities and Denk Strategic Wealth Partners and their representatives do not offer tax advice. Please see your tax professional regarding your individual needs.

*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.