No matter what today’s market brings, April will go down in the record books as one of the best months EVER for the market (the S&P500 Index*).  By itself that’s pretty cool.  However, March was also a record-breaker, although not the kind of record we enjoyed. So, what’s going on?

I’ve read various pundits say we’ve just had a big bounce off of the bottom, others say that the markets have reached an equilibrium point, and still others maintain that it’s a struggle to break the 50-day moving average. It looks to me like a number of battles are going on.

We have stimulus vs. sustainability, growth vs. slowdown, the bulls vs. the bears (of course!) and the big one: expectations vs. reality.  The winners and losers in those battlefronts will determine where the markets go from here.

So, what are the market’s expectations of the future? We’re in a recession now. That was widely expected but the reality has arrived. And the news is going to get worse if for no other reason that the statistics are generally lagging data.  (Example we find out later what the unemployment has grown to.)  Seems to me that the big unanswerable question is WHEN will things turn? And what will things look like when they do?

I’ve heard some people suggest that current stock values have exceeded any possible future economic reality. If we had something to base a timeframe on which the great ‘stopping’ of the economy could last, or how many jobs will actually be lost vs. postponed, or how many businesses will shut their doors -never to reopen- well then perhaps we could make some reasonable guesstimates.

Then there’s the war of science vs. the virus.  I believe that it’s unlikely to see a return to something like ‘normal’ until after a drug therapy or a vaccine becomes available.  The bulls are betting on science here- and hoping that science wins this one – and soon!

But for now, we’re seeing companies making estimates of future earnings based on…………. well what? We’ve seen companies project that earnings could be back to where there were in January by the end of this year.  And others project that it could take up to three years for markets to return to the January, 2020 levels. Ugh!

The hobgoblin here is that most believe things can’t get any worse.  (Does that sound like good news to you?)  How long can airlines stay aloft without passengers? Oil companies without people driving their cars? Potential bank problems?

So right now, the bulls appear to be winning- after all a decline of ‘only’15% in an environment that is widely expected to be worse than the financial crisis of ten years ago could be considered a ‘win’- right?  We’ve already determined the worst cases for unemployment, GDP, earnings, and of course the virus.

Market Minute – The Dreaded May 1st

Today the markets start the beginning of May and there will, as usual, be lots of comments from pundits regarding a well-known phrase ‘Sell in May’. And there will be those suggesting that we sell in this May and avoid stocks until the end of October. The actual historical numbers suggest that the track record for this idea is rather questionable. 

Some others note: Although the first trading day of May has a historically strong record, it’s not a slam-dunk. Today’s futures about 6 am don’t bode well for the bulls today. The season (May thru October) does however have merit in that during years where the first quarter is down, the summer season also seems to be lackluster. 

And when the first of May is up, the following week is a weak week. All that probably won’t be relevant this month…

One more stat: if the S&P500* Index has pulled back 5% or more during the first four months, the next 6 months or so, on average, tend to be pretty flat, but with higher than average volatility.

SO yes, today starts out moving down. But after the incredibly strong April, a bit of giveback shouldn’t be a surprise for anyone. Oddly, the pullbacks in April happened to coincide with good-sounding news regarding an anti-virus drug from Gilead. And this week’s high might stand for a while as the S&P Index moves around a bit under the Wednesday peak. 

And here’s a note of caution. As we mentioned last week, Junk bonds and stocks were not agreeing with each other over the past week or so. Both assets tend to move together, whether it’s up or down. When they disagree, but bonds are usually more correct than stocks. But then the bond market has been heavily influenced by the FED’s actions. Guess we’ll see. 

Enjoy your weekend, stay at home, and stay healthy!

We’re not sure, but are spending a LOT of time studying the possibilities.

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.

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