There is a saying that bear-market rallies look better than the real thing, and yet the huge bounce off of the December 24th lows looks better even than the typical bear-market rally. A bear-market rally, by definition, is a swift bounce up from a temporary bottom – strong enough to entice investors (who have bailed) back into the markets — and they get back just in time to see another drop back to test or exceed the prior lows. Here are some details. The 12.1% gain in the S&P 500 Index* in 16 days (up till January 17th) compares well with the median and average bear-market rally going back to the mid 1940’s. Median rally of +8.4% in four weeks and +10.6% in six weeks have been the historical numbers. However (bonus points for you if you knew I’d say ‘however’) the range around those stats is huge. The bear-markets of 2000-02 and 2007-09 gave us seven interim rallies ranging from +12.0% to 24.2%. It would be nice if there was a historical gain that proved to be the definitive end of the bear, but of course there is no such animal.

Here’s an image that makes that explanation clearer – I hope.  It is a picture of the time from mid-2007 through the middle of 2008. The chart shows what has happened repeatedly as the index values bottomed – and then bounced (in this case by 9.9%, and then again later by 14.8%) only to be followed by lower prices.

So, why is this relevant? We all felt the huge drop in stock prices in December. There was truly no place to hide – as value and growth dropped like a rock, and high quality and lower quality fixed income did the same. And now we are experiencing a bounce. The headlines give us hope that the worst is certainly over. Hope is a good thing but it is not a strategy so, for the moment, we remain in the mode of conservative allocation. Once those bears hit in 2000 and 2007 the Indexes* went on to drop over 50%. I am certainly not making a prediction. The crystal ball just isn’t that clear. We believe that it’s not yet time to call an ‘all clear’. And we will continue to monitor the fundamentals along with the price charts and attempt to continue to keep our clients on the right side of the trend.

I am reminded of the trailer for the movie ‘Jaws’. (Ask your parents about that – it was a big hit move in 1975!)  In the trailer the announcer says ‘Just when you thought it was safe to go back into the water…’

Market Minute – The Fed: “Never mind.”

Many readers believe that the fear of what the Fed might have done (continue its current reign of quant tightening by raising interest rates) was at least in part a cause of the December break in the markets. With that in mind, this weeks’ Fed meeting which resulted in NO rise in interest rates, and more importantly (I believe) the Fed’s indication that ‘it will not be raising interest rates in the foreseeable future’ and will be ‘willing to change the pace of balance sheet runoff if the economy takes a downturn,’ could well be having a short-term effect on markets. We now see only a 7% probability of rate hikes in 2019. The immediate reaction to the announcement was yet another bounce in the stock indexes. We find it quite interesting that the aggressive parts of the sectors bounced and ALONG WITH THEM the usual DEFENSIVE players in the shape of utilities, real estate, and gold. Of interest to you goldbugs, GLD climbed almost 5% this month and is now at its highest level in nine months. So, it appears that the aggressive investors find it comforting, and the conservative investors find it less comforting, as both groups appear to be adding to their bias in their portfolios. It is encouraging to predict that the recent plunge will be completely forgotten (most likely) by this time next year.

  

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[@]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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