Because this was a headline this past week, I feel motivated to present a different view. The headline is attributed to former Fed Chair Ben Bernanke; he gets the headline. But, as in so many things, the details are important.

I agree that a recession is coming…someday. But then a July snowstorm in Phoenix is also (probably coming)…someday.  Recessions are a fact of life, like death and taxes. But predicting one that will occur in 2020, as Mr. Bernanke did, is (in my opinion) rather like consulting a crystal ball. It’s pure chance, and no one (certainly including me) can see clearly that far into the future.

It not just Ben who is predicting an upcoming recession. Other analysts are saying it, too. When they do, they get their name in the headlines. Scary headlines attract attention. But there is good news here. They don’t think the recession starts tomorrow. No longer is the outside event (Brexit, Grexit, student loan defaults, a poor result of NoKo meeting, etc.) ready to cause an imminent collapse. Now the recession is two years away. Think about that. If the advancing recession were such a sure thing, why would we have to wait two years for it to show up? Wouldn’t we at least be moving in that direction now?

More detail: the current problem is that the economy is growing too fast. It wasn’t long ago that we were hearing the same speakers pontificate on how the ‘low-growth economy means a recession is coming.’ Today it’s that a ‘high-=growth economy means a recession is coming.  Real GDP is too strong, so the FED will over-tighten and inevitably cause a recession’.

No one knows what the FED will do (not even the FED!).  IF the FED follows its own forecasts and raises the funds rate to 3.5% in 2019, that certainly doesn’t tell us whether the policy is ‘tight’ or loose, or just right.

So excessive interest rate hikes COULD potentially create a  recession. But then deficits caused by government over-spending COULD also potentially cause a  recession. And if Congress were to raise tax rates this also could cause problems with US growth rates which COULD potentially cause a recession.

But the bottom line is still this: The U.S. is not facing an imminent threat of recession.  That’s the reason the pessimists have shifted their forecasts from current possible recessions to potential future recessions (vs. immediate crises.) We do not believe that we have an economy about to experience a problem. Investors who believe in a recession forecast may be their own worst enemy.

Ben there. Dun that.

(Thank you to Brian Wesbury for use of his ideas in this e-letter.) 

Market Minute 6-15-2018 – Definitely NOT a ‘Sell in May’ year!

And this year, as always, we heard many proclaim at the beginning of May that one should ‘Sell in May and go away’ or in other words, avoid the markets during the month of May.

Historically one can easily find May months with lousy returns. The rest of the saying postulates that summer is generally a weak time in the markets.

While we don’t yet know about the Summer of 2018, we can look at May and find that the charts (which suggested that May might be a positive time to be invested) were right.

To make my point here are some major index returns for the four-month period from Jan first thru the end of April of this year:

S&P 500 Index      -0.5%

Dow Jones Index   -1.8%

Nasdaq Index       +3.5%

Smallcaps Index   +1.6%

Not particularly exciting is it?

Now have a look at the returns for the same indexes during the ONE – MONTH period from May first through the end of May. (In fact, it is last month)

S&P Index             +2.4%

Dow Jones Index    +1.4%

Nasdaq Index         +5.6%

Smallcaps Index     +6.45%

 We don’t, of course, know what the rest of the Summer, or the rest of the year will bring.  But this was certainly a year in which it paid to stay invested in May.

 

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
www.denkinvest.com

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.

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