As promised, here is our fully un-redacted eLetter for this week.

While the main topic of conversation in many quarters is the release of the long-awaited Mueller Report and its potential repercussions, we think it is wise to keep in mind that the report is just one ingredient in the minestrone of financial markets, and even then the report may end up being something of a national Rorschach test with readers seeing what they want to see. Fortunately, we have a few other reports to digest and, of these, there is more good news than bad.

Speaking of good news, it seems that we can get too much of it. When the markets approach new (or even old) highs it is tempting to start thinking that they should then turn down — just to keep things fair. Of course, that’s not reasonable. It’s like thinking that if a flipped coin has come up heads 6 times in a row, the odds of tails on the next flip have increased. We know that isn’t true, that the odds on every flip are still 50/50, but it doesn’t seem ‘fair’. Fortunately, while there is always risk in the markets, there is also a lot of information that can be used to take our decisions far away from simple chance.

Regular readers of this newsletter know that two of our favorite economists are Brian Wesbury and Robert Stein, both of First Trust Advisors. They considered the phenomena I just described above and offered this:

“Through Friday’s close, the Dow is up 13.2% year-to-date, while the S&P 500 is up 16.0%. To reach our year-end targets, the Dow would have to gain another 8.9% while the S&P 500 would have to rise 6.6%.

We think investors should be undeterred by new record highs. To assess market valuations, we use a capitalized profits model, which takes the government’s measure of profits from the GDP reports and divides by interest rates. Think of it this way: if profits are higher, stocks should be higher, too; if interest rates are higher, stocks should be lower, as they compete against an alternative with a higher rate of return.

Our traditional measure – using a current 10-year Treasury yield of about 2.57% – suggests the S&P 500 is still massively undervalued. At the end of last year, we used 3.40% for the 10-year yield, and generated a fair value on the S&P 500 of 3,100. Now that looks like an aggressive call for long-term yields. Using, say, 3.00% for the 10-year puts fair value at 3,500. The model needs a 10-year yield of nearly 3.6% to conclude the S&P 500 is already at fair value, with recent profits.”

Ron’s Market Minute 4/18/2019 — A Sense of Perspective

Like most people, we were stunned and deeply saddened with the news of the horrible fire that caused unimaginable damage to Notre Dame Cathedral in Paris. One email we received was from Jacob Haynes at Ivy Investments. We’d like to share it with you.

THE LOSS TO CIVILIZATION YESTERDAY was so profoundly shocking that it seemed to unite people throughout the world. It was a reminder, sorely needed, of what’s important and what isn’t.

A SENSE OF PERSPECTIVE seems to be missing. Donald Trump’s tax returns suddenly don’t seem very meaningful; the Mueller report doesn’t seem as important.

THE MAJESTY OF NOTRE DAME is deeply humbling to us mere mortals, living in the new social media world that has forgotten history. The fire was a metaphor, perhaps, for what has been lost in recent decades: a reverence for the humanity and spirituality that produced such a humbling colossus 800 years ago.

HOW IRONIC THAT THE CONCEPT OF RESURRECTION will dominate the coming weekend; our fondest wish is that Emmanuel Macron, who views himself as a man of destiny, can appeal to a greater purpose — a renaissance for his fractured country.

EVERYONE HAS THEIR OWN TAKE-AWAY after yesterday’s stunning imagery; ours is a renewed appreciation of how ephemeral this world is, which makes us deeply grateful for each and every day. Peace be with you.

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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