‘E’ Day is just around the corner. And it truly seems that a blowout by either side is unlikely. In fact what does seem likely is that we will not have election results for the top spot on Tuesday night. So, the buzz driving lots of conversation remains the question of which party is favored by the markets. There are several boatloads of data on that question and that surprisingly gives us a problem: with so much data to draw upon, nearly everybody can cherry-pick want they want and use those bits to present a rationale argument to justify why their party does best (so, Vote for ME!)

A recent survey by a team of economists from the National Bureau for Economic Research found that 87% of Democrats expect Joe Biden to win, and 84% of Republicans expect four more years from Donald Trump. And if their expected candidate wins, respondents on both sides of the aisle expect the economy to fare rather well. But if not, it could be dire.

“Importantly, this stark disagreement does not reflect two sets of partisan voters each foreseeing a close election that just barely breaks their way,” said lead author Olivier Coibion, professor of economics at The University of Texas at Austin. “Among Republicans, the average probability they assign to Trump winning is 76%. Among Democrats, the average probability assigned to Biden winning is 74%.” So, once again, where you stand is where you sit.

If all this makes you a little queasy, help is on the way. Once again it appears in the shape of that bastion of reasonableness, Brian Wesbury, Chief Economist at First Trust Advisors. Brian reminds us that investors (and advisors) will always find the path to returns. Government policies will have a say of course but, over time, those who remain invested will be rewarded. The degree of this fact is actually astounding as you can see from Brian’s chart below.

Source: S&P, FT Advisors. Data Quarterly 1949 – Q3 2020

Now, I bet you’re feeling better already.

Ron’s Market Minute – Using the VIX as an Indicator of Market Bottoms!

This week’s sell-off has been pretty nerve-racking. However, it has not yet ruptured the primary uptrend that began in March. You’re probably used to me talking about the VIX as an indicator of how much fear there is in the market. We look at that indication by checking the absolute level of the VIX.  In a calm market it typically stays below 15 or so. When it gets over 20, we prepare for some craziness. Earlier this week we saw a reading of 42! 

But today, let’s have a look at using the VIX as an indicator of market BOTTOMS. For this purpose, we look at the direction of the indicator rather than its absolute reading. The top half of the chart shows the value of the S&P500 Index* over the past 25 years and the bottom half shows the path of the VIX fear indicator. This chart is courtesy of Martin Pring…

You’ll note that when the VIX (lower chart) strikes a very high level (as it did in 2002, 2010, 2011, and 2019) the ‘market’ (upper chart) has been close to a major bottom, rather than a top, and historically as the VIX has worked its way lower the market has worked its way higher. At 42 this past week the VIX is already higher than it was at any of those times. Of course, it is most certainly possible for it to move much higher. In my opinion, though, that appears to be unlikely as a substantial amount of concern has already been factored into prices. Therefore, we are on the lookout for a reversal as a sign that the current market decline as run its course, and it is ready to make another (major) move upward. Hold on over the next week, and we’ll see what the future direction will be. 

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

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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.

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*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.

Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

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Past performance is not a guarantee of future returns.