Seeing the Dow Industrials lose 2000 points in a single day was something that wasn’t even on my worst case radar a month ago. However, as we have seen many times this century with the advent and domination of computerized trading, things can and do change at warp speed. In the not-too-far-distant past, market drops that used to take weeks, months or even quarters to complete are now compressed into days and weeks. Risk no longer slowly builds; it happens all at once. I have discussed several metrics to put this decline into context and the latest should come as no shock. This correction is now the deepest ever coming from an all-time high.

I have always been a proponent of the free market, but that doesn’t mean there shouldn’t be any safeguards. Until 2007, traders couldn’t just short stocks when they pleased. They had to wait until a stock traded at a higher price so there couldn’t be a piling on effect to drive a stock into the ground. That rule, (the uptick rule), was changed to eliminate that for what seemed like all the right reasons. That was until computers took over and now dominate trading. Remember that people only complain and on big down days. On the other hand, they love the computers on big up days.

On a closing basis, this correction broached 20% which puts it in line with 2018 and 2011. Those declines lasted 108 and 65 days respectively. The current one is 16 days old. 2018’s correction was fully recovered in roughly four months. 2011 took five months.

Yesterday’s decline saw widespread panic on almost every indicator I use. It was downright ugly at the open. For a brief 15-minute period during the day, the stock market was “limit down”, meaning it was down 7% and no trades could take place at lower prices for 15 minutes. That type of “circuit breaker” was put in place by President Reagan’s working group on capital markets after the 1987 crash. Where was the circuit breaker during the 2000-2002 and 2007-2009 bear markets?

Anyway, on Thursday of this week, once stocks reopened from their 15-minute timeout, they began to stabilize. By the end of the day, stocks closed down significantly. The day was ugly and difficult for investors.  There are just too many historic extremes for selling to continue unabated.

If I had to offer one indication that something was beginning to change, it came from the Treasury bond market which has been rallying at its strongest pace of all-time. Stocks have been held captive by this. At its low point yesterday, the yield on the 10 Year Note was just under 0.40%. That is per year! In other words, if you gave the government your money for 10 years, you would earn 0.40% in interest each year. That’s it. Talk about panic and fear.

This is anything but the “all clear”. It’s just a building block along with so many other indicators I watch that say stocks are in a potential bottoming zone.

I continue to note that a number of large advisory firms and brokerage companies have not (yet) revised their expected year-end 2020 numbers downward.  Most of the health hazard panics of the past 63 years (going back to the 1957 Flu in the US,) saw markets rebound within 6 months of the start of the market drop. While I am not a medical person, nor an epidemiologist, history says that this too shall pass.


Ron’s Market Minute – Risky Business?

We all live with some risk – even on a regular basis. Many people know that my wife and I are scuba divers, skiers, and we occasionally ride with a Harley Motorcycle group for breakfast rides. Is there risk involved? Yes, according to many people. And for those of you who get into a car now and then, I note that on average 100 people die in auto accidents daily in the United States. And according to the CDC we lose between 17,000 and 28,000 people (on average) a year during flu season. Yet these are risks we acknowledge and accept, in order to go about our daily lives. Certainly, we take precautions – we wear seat belts and avoid driving on Holidays, and we dive with experienced Dive Guides. Perhaps new and strange viruses will become yet another risk that we carefully consider by washing hands and avoiding contact with people who exhibit traits that might indicate poor health, and we will grow to accept more new viruses as a common fact of life in the current world.

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

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