Over the past many weeks, we’ve had occasion to consider both the arguments of those pesky pessimists who want to believe our bull market has reached the end of his run and also those sunny day optimists who say ‘Hold on there. Not just yet!” While we continue to be more aligned with the latter group we must also find empathy with the bull who, like so many of us these days, may not be the bull he once was.

Market volatility has been the focus of much discussion for the last six to eight weeks and that is really another manifestation of the battle between the bulls and the bears. We’ve seen bears push prices down only to bring in another round of bullish buyers. The good thing about this behavior is that it forces equity prices to be not over-valued or under-valued but fairly valued. That really is a good sign; it’s an indicator that bubbles are getting ironed out.

So, now we know that there is a volatility component to deal with and we have observed that much of this is based merely on the assumption (by some) that the bull must die for no other reason than he is just too old to continue living. We put that argument to bed a couple of weeks ago in this very newsletter. There is however, something else afoot. The bears now have the argument of advancing interest rates. This argument is one of wealth erosion versus wealth accumulation and the opponents are interest rates versus GDP growth.

Which brings us to the “yesbuts’.

The markets are having a bit of a freak-out over the fact that interest rates are on the rise. Specifically, the freak-out is all about the US Treasury 10-year note — which penetrated the psychological barrier of 3% this week. The 10 year is especially important because a lot of other interest rates are pegged to it. Higher interest rates can have a corrosive effect on the economy in general and so will also be expressed in the performance of the financial markets. Bears are quick to point out the dangers and one of their most convincing points is that ‘When bonds will pay you a useful return and also provide you with low risk why would you buy stocks?” This is a weak argument when rates are exceptionally low, as they have been for quite a while, but the argument is much stronger in a rising rates environment – such as when the Fed pushes rates out of fear of ‘too rapid’ growth. Enter the bulls who say ‘Yes, but… that growth means higher corporate earnings which in turn makes stocks more desirable”.  To which the bears reply ‘Yes, but…why not lock in those safe yields now?’ They put more weight in their argument with a defensive point: ‘Even if GDP is also advancing it may be running at a delay relative to the immediacy of the interest rate rise’. Advantage: Bears. To which bulls (and our side) say ‘Yes, but…we’ve seen this 3% thing before and found it to be less than meets the eye’. Indeed, as recently as 2014 the 10-year hit 3% and the S&P is up about 55% since the beginning of 2014.

And it pleases us to note that the current environment is in many ways better than that of 2014. For example, Consumer Confidence is at multi-decade highs and new unemployment claims are at low levels not seen since 1969. Nice pair of statistics don’t you think?

Market Minute 4/27/2018 – Still Bothered by the Sticky VIX

 So yes, that darned VIX continues to stick at a higher number than we’d like to see. That said, yesterday was once again an impressive day – lots of good company earnings reports, and more evidence of a growing economy seem to help.

We’re hoping to see the S&P500 Index* close over 2750 which would break through a 10-week moving average – and that would provide more positive evidence of market strength. In the meantime, markets look pretty flat early this morning. If indeed we finish in the green today, that will be three ‘up’ weeks in a row.

With the very strong earnings in the S&P companies, and the correction lows (apparently) behind us, our crystal ball shows that we should expect to see markets challenging their highs made in January.

Despite this week’s slow start, numbers have looked pretty impressive since then. And it’s a good thing that headlines are still shouting negatives (The Bull is too Old!, etc.).  Those negatives give us faith that the bull is not actually dead.

As you’ve heard me say (often!) when we pick up the morning iPad (not a newspaper anymore) and see the headline that ‘Everything is Wonderful’ we’ll be greatly concerned.  But till then, Huzzah for the Bull!


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.

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