Based on recently updated data it appears that the ‘official’ US Unemployment rate in April was 14.7%, and yes, that’s the highest since the Depression, although data from that long ago isn’t as accurate as today’s data. Whether that number is accurate or not, it’s a really high number. Our expectation is that the May number will be even higher when it’s announced on the 5th of June.

This is terrible news for our country for a myriad of reasons. GDP is lower because fewer people are working and contributing to the economy. State and Federal unemployment benefits increase deficits, and tax revenues (because people are not working) are lower. In addition, many workers see the assets on their personal balance sheets dropping, and debts increasing.

On the other hand, we’ve heard various media people comment that they expect the fastest economic rebound EVER, and we’re beginning to see it now, so while big unemployment numbers are horrible for many reasons, they are Bullish for stock prices. (Note: Bullish is not necessarily the same thing as ‘good’.) The current ongoing upward march of stock indexes is great for those who are invested in stocks, but not so great for those who wished they had invested at lower prices. Bottom line; something ‘bad’ (unemployment numbers) can still be ‘Bullish’ (for stock prices.)

Of interest, historically the S&P500 Index* has bottomed between 4 and 12 months ahead of the worst point for unemployment rates. And after an economic recession is a fact it is generally understood by all that it will, eventually, end. Importantly, stock investors become optimistic sooner than the hiring managers do. A more important point is that high unemployment rates tend to be followed (historically now) by several months of rising markets.

If some of this appears contradictory, don’t worry. It actually does make sense: lower number of people working and lower GDP should mean lower company earnings. And because company earnings (or expected earnings) are fundamentally the most important factor in stock prices, one might guess that stock prices would continue downward.

But on the other hand (that two-handed economist again) more unemployment has tended to give us a much more accommodative FED, and that’s certainly the case at this time. When the COVID panic unfolded the FED dropped its target rate down to 0-0.25%!! In addition, the FED ramped up QE4 at the fastest rate EVER in their history. The result has been extremely stimulative to the ongoing market rebound, and we believe that the FED will continue to stimulate markets until it is clear to most everyone that our economy has turned over to the upside, which we believe will be sooner than later. After all, this is not your grandfather’s recession. It is in fact the first and only self-imposed recession in history. It can therefore, at least to a large extent, be ‘un-imposed’. The Fed action then is different than normal. It is not intended to kick-start the economy, as much as it is to offer a bridge over troubled water.

So for the immediate future, we anticipate the FED stimulus will continue to aid in pushing up our markets. Fingers crossed!

Thanks to Tom McClellan for permission to use his ideas here.

Ron’s Market Minute – We’re Above Average!

Any of you who’ve attended our lectures on being your own investment advisor have heard us discuss one of the easiest to observe indicators- the 200 day simple moving average (200 MA).  The 200 day is also generally accepted as a longer-term indicator of market health. Historically if one has owned stocks when the price of the market index (indicated by the red ‘SPY’ line) is above the 200 MA shown in blue, one has participated in market upswings. Conversely, when the price of the market index has been below the 200 MA, markets have tended to head down, and it’s not been a good time to own stocks.  (Generally!).

Look at this chart and note that in 2008 the red line (the market index) fell below the blue line (200 MA) and of course you will remember that the rest of 2008 and 2009 were not a great time to own stocks. Then note that from about mid-2009 through the end of 2018 the red line (market) crossed above the blue line, and has been mostly above the blue line (200 MA) and it has been a great time to own stocks. 

Zoom your eyeballs in on the 2020 year and note that after the market peak in early 2020 the market line (red) has been below the blue line (200 MA)- until NOW. This same situation is playing out in most of the US major indexes at this time. The news has generated headlines and market pundits are again sounding more optimistic. 

Does this mean we’re now in the clear, and we can again jump in -feet first into all stocks?  Well, not quite. IF only it were that easy! It means that there is a good chance that markets MAY continue their recent upward projection- never on a straight line however. It’s a sign that markets appear to be becoming healthier, and perhaps a time to consider increasing allocations to stocks- depending of course on each individual’s own personal risk tolerance.

But we can become somewhat more optimistic. Remember that MS Market will do what she can to confuse and disappoint us, and that it is usually better to take smaller steps as we change our investment mix. 

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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