A pessimistic friend of mine once pointed out that in the middle of every silver lining lies a very dark cloud. I asked him if he were one who normally sees a glass as half full or half empty. He replied that it didn’t really matter as long as the other half could be filled with vodka. The events of the last few weeks have made me think a bit about that fellow, and how he’s holding up. Tough times, these.

Throughout all of 2019 we heard that the biggest problem facing businesses large and small was a lack of available workers. So, it was rather stunning to see the number of people filing for unemployment this week was 3.28 million. To underscore that number’s magnitude, consider that the previous record for number of filings in a single week came in 1982 and was 695,000. But, is it fair, or even meaningful, to compare the current economic chaotic situation with past historical events? We don’t think so and the employment figures are a good example of why that is.

In prior rapid draw-downs, even ones that could be called ‘crashes’, people lost jobs due to shrinking demand in the services they offered or products they made. In the current situation, most of the jobs have not in fact been lost — the employees have instead been separated from them. They want to keep their jobs and their employers want to keep them hired. That fact represents a pretty nice silver lining because it suggests that once the thing that is keeping people from accessing their jobs is removed most of the ‘unemployment’ could disappear.

With respect to the markets, let me point out that there is another silver lining that almost always occurs in big drawdowns. That is the improvement in valuations. As you know, we have grown cautious about lofty valuation levels for a while. Well, that is now not so much a concern!

The Coronavirus and the illness it causes, CoVid-19, are certainly very serious and I don’t mean to minimize their importance. However, if history is our guide, we will get through this just as we have gotten through scary times before. How soon that may come is unknown since the virus has also infected every economist’s and analyst’s crystal balls. Meanwhile, while we are not going to attempt the fool’s errand of calling a bottom, it is heartening to see a lot of upward movement activity this week. Will it hold? Can’t say yet. There is still a chance of re-testing the recent lows before finally getting back to business.

Caution is still the watchword.

Market Minute – Something Positive

Most people have probably heard by now that the IRS has extended the tax filing date for this season to July 15, 2020. That appears to be across the board and would apply to IRA, SEP and HSA contributions as well – also to taxes owed and estimated taxes.  As always, we recommend that you check with your tax professional for tax advice, but that’s how we read it.  That’s the good news at the moment. 

Many of you know that Tony and I used to call Wisconsin our ‘home’ state.  In Wisconsin during the Spring season while the ground is still covered with the white stuff, it is eventually possible to see a few small plants or ‘green shoots’ work their way up through the snow with the promise of warmer weather.  Markets over the past three days have given us some green shoots. 

Monday’s market low may have been ‘A’ market low, but not necessarily ‘THE’ market low.  The market’s green shoots are evidence that a rally mode is upon us. After three straight up days no one should be surprised if Friday is back down.  (I believe there has only been one ‘up’ Friday since mid-February, and the same holds true for Mondays.) Historically, after the four-week crash it would be quite normal to expect a sharp snapback to regain a third or more of the drop.  That’s what we are probably seeing now.  It is vicious!

Whether we actually hit ‘the’ bottom about a week ago is anybody’s guess.  Usually in similar rare happenings like 1987 or 2008 the market bounces off the initial low, rallies and then finds a lower low later on.  On October 29,1987 the market dropped 22% in one day (not a typo), then had a great rally, but actually closed at ‘THE’ low in the following month, after which it turned up and kept going.  Similarly, after the initial low in October 2008 we saw the bounce rally, and then a second downward plunge into March 9, 2009 which was the actual bear market bottom.  It’s possible we MAY see the same movie play out here, so we urge extreme caution to those of you asking us to put additional money to work at this time. 

Right now, the ‘Vix’ or risk barometer is above 60 so we are still walking the edge.  No one knows which way we will go from here. (I’m embarrassed for the media pundits declaring the new Bull is now alive.)  This is however an early indication that ‘THE’ bottom MAY be in.  We won’t know actually for a couple of months.  Again, we’d like to be hopeful, but the crystal ball is pretty hazy.

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

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.

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