Headlines can be scary things and this past week has had its share. Scary headlines sometimes lead to investor fear, and when investors are fearful, technical measurements sometimes become less-than-useful.

I’ve seen the terms ‘correction’ and ‘bear market’ several times during the week. Using a 10% pullback from a recent peak as a definition, yes, we’re getting close to a correction. Yet it’s important to note that a correction does not necessarily mean that a bear market is on its way. Actually, history makes a strong case that this recent bunch of selloffs is nothing unusual. Big drops are a normal part of a market pulled in different directions by conflicting concerns.

So, for my engineer friends, according to the Schwab Center for Financial Research there have been 22 market corrections since 1974 and four of them eventually turned into bear markets (1980, 1987, 2000 and 2007). Our current bull market, which goes back to 2009, has had six corrections so far that avoided becoming bears. Here’s what may be a key; bears are quite often triggered by a recession, and there are few, if any, signs that an economic contraction is around the corner – according to Schwab.

SO…while no bull market can live forever, remember that bear markets are a fact of an investors’ life. A ‘next’ bear will eventually arrive. And the average bear has lasted just under 17 months. They often end as abruptly as they begin, and the end is typically initiated with a very quick rebound that usually cannot be predicted.

Market Minute – Peak Earnings vs. Peak Earnings Growth

A couple of letters in a phrase can make a big difference. We recently heard a financial speaker talk about the difference between ‘peak earnings’ and ‘peak earnings growth’. It seems that some investors are worried about ‘peak earnings’. 

 So, let’s make a distinction between peak earnings and peak earnings growth. Peak earnings would suggest that earnings growth will begin to turn negative, suggesting a possible profits recession. That would be quite bearish, but as we said, there are few signs of an impending recession. Peak earnings growth however is quite a different matter. This means that earnings will continue to grow, but at a slower pace. Since 1980 we have had 11 peaks in profit growth. In all but one of those times, returns over the next six and twelve months were possible, with average returns of 9% and 18% respectively. We actually had peaks in earnings growth as recently as 2013 and 2017, and both were followed by periods of quite strong market returns. 

 Here’s the takeaway: Earnings have not peaked, and a slower measure of peak earnings growth does not signal the end of a bull market. 

 529 Tax Deduction – And Last, just so this doesn’t pop up till the end of the calendar year, I’d like to remind you that Arizona tax filers can receive a state income tax incentive for contributions made to any states 529 plan. This incentive adds to the ongoing tax benefits of a 529 plan where assets grow tax-deferred and withdrawals are tax free when used for qualified education expenses. 

  • Married couples can subtract up to $4000 when filing jointly
  • Single Individuals or Head of Household may subtract up to $2000

  

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.

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