Although the past decade has most assuredly seen markets bounce up and down, for the most part the only fear clients seemed to express was FOMO, the Fear of Missing Out, as markets jumped upwards.  After all, ‘Everyone’ knew that markets would keep going up (to the moon?!).  We watched as the pundits ignored risk and recommended more and more risk-based assets. Today however, it appears that this kind of thinking has mostly become a thing of the past. At our recommendation, many client-investors have given more serious thought to their risk tolerance, and once their longer-term goals are achievable, have moderated their big-picture views on market risk.

Ms. Market has shown us once again that she can go down much quicker — and also rebound much quicker than we could imagine, and often in unpredictable ways.

We’ve just experienced the fastest bear market and recovery – EVER! Some has been caused by algorithmic trading.  This is the first bear market in which computer-trading has had a big part in the market movements, and it has amplified the degree of trading on both the upswing and the downswing.

In the past there has been enough time to react to markets, create an appropriate strategy, and craft a strategy that would react to the changes in a time-appropriate manner. Today many of the old rules and strategies are nowhere near quick enough to keep up with the algorithmic traders because…machines.

Indeed, we’ve recently seen stories of bigger-name hedge funds — some of which were quick enough to parity the market disruptions to gains, and others that missed most or all of the bounce back from the March low.  Personally, some of you have mentioned your thanks that we moved to more of a risk-off position, and although we caught much of the bounce, clients are still underweighted in equities.

If you’ve not yet taken the time to give serious consideration to your overall risk tolerance, this would be a good time to re-think it — not with the presumption that you might be wrong, but just a re-check of your priorities. In the same way that a few of you may have been thinking the world was ending, and some of you managed to ignore the headlines of the moment and look to the future, we all have our individual way of looking at and reacting to the risk of the world we live in.

We would welcome the opportunity to explore this subject with you further, and as always are available to meet by phone or video to discuss further.

For now, much of the market risk has been fading from our memories, but we suggest that you remember that risk levels are still very elevated, and this is still a relevant topic.

Ron’s Market Minute — Yet Another Look at the VIX

This has been an interesting week on two fronts: 1) Jerome Powell, in this week’s Fed speech, gave us assurance that interest rates will continue to be low for perhaps another two years and 2) Money is cheap, and speculators, day traders, and similar market participants have access to oodles (that’s a LOT) of cheap money.

The combination of those two facts suggests that we will continue to see oodles of money moving into and out of the markets, and also moving into and out of different parts of the markets (sectors) with astonishing speed.

I believe this contributed to yesterday’s (Thursday’s) market sell-off as some of that ‘hot money’ moved to protect its short-term gains. The S&P 500 Index* ended the day at about its long-term moving average (200-day MA, a logical support level).

Even though this has not yet changed the intermediate and short-term ‘up’ trends, and this is a good spot for a bounce, the S&P 500 breadth showed that strength is still (or again) concentrated on the three largest sectors (Technology, Healthcare and Communication services) with the rest of the sectors moving to a bearish look.

This means that risk in stocks is above average. Keep in mind that the Index fell 30+ percent in 23 days, advanced over 40% in 53 days and fell 5.76% on Thursday. The Index gapped up 2.4% on the open Friday. Welcome to the rodeo. Volatility has been and remains above average, which means risk is above average. 

The VIX (measure of volatility in the market) remains at an extremely elevated level.  Since the turn of the century a ‘normal’ market measurement has kept the VIX generally below a level of 20.  In 2008 and this year in March we saw it surge above 80!  The 5-day moving average of 32 puts it way below the peak of just 2 ½ months ago, but still WAY above a normal amount of volatility. 

More aggressive investors are generally holding their long-term allocation to stocks, while retired investors living on the income from their investments and very conservative investors will most likely be more comfortable maintaining a less-than-normal allocation to stocks. 

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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