As readers know, we look at market indicators in a short-term (6 weeks or less), medium term (up to 3 months), and long-term (typically 6+ months). We do this because each of those indicators sort of like to tell their own story, which may be a bit myopic.

In an ideal world it would be nice if the short, intermediate, and long-term timeframes would just all indicate the same market outlook. However, it’s not an ideal world. Nevertheless, at this time, in the short and intermediate term markets are in an uptrend. The longer term is still uncertain, but the positive shorter terms give us some positive indicators to work with.

I note that the post-election rally continued last week, and economically sensitive value stocks led markets higher on news of a vaccine that is 90-94% effective against Covid-19. In contrast, this promising news came in the middle of a continued rise in both Covid cases and deaths, leading of course to more talks about lockdowns globally and in big cities here in the US.

Continued volatility will be expected as all of us weigh the pandemic’s continued effect on the recovery. Still, I believe that investors should consider increasing their market exposure for several reasons.

Our old favorite indicator, the Junk Bond Indicator, is in a very positive configuration. This is a reliable indicator as market forces that are favorable for high yield (junk) bonds also give a positive environment for stocks. Do keep in mind that ‘Junk’ is almost a term of endearment. Yes, the ‘safety’ factor is less than government bonds (for instance) but the higher risk is offset by the higher reward, at least that’s the theory. Of course, your mileage may vary.

On the equity front, within the US markets leadership is shifting from large caps to smaller caps.  This is usually a sign of a healthy market that is displaying broader participation during rallies – and also showing an improving economy.

The Fed – let’s face it, has RARELY been this accommodating, and more stimulus is likely to be passed in Congress now that the election has passed. A stimulus package will likely also benefit small companies (and be positive for small-cap leadership!).

Although certain sectors are becoming a bit overpriced (in my opinion), and with the stronger market breadth we are not likely to see a broad overbought market. That’s also good for investors.

Sooooo…while the future is always unknown, and it’s a good idea to focus on your personal risk management, especially during talk of more shut-downs, I feel that this is a good time to take advantage of opportunities as we move into what is historically a seasonally favorable time of the year for stocks. And speaking of seasons, once again the Great American Feast is just around the corner. Accordingly, we offer this:

Thanksgiving is more than the festivities. It gives us time ponder upon what lessons we have learned and how we can spread happiness around, to look back at all the great memories and good people who came in our lives.

Happy Thanksgiving to you and your loved ones!

Ron’s Market Minute — The Most Dangerous Words: ‘This Time Things are Different’

Regular readers have heard us make fun of people who use this phrase as an explanation why something that didn’t work in the past should (or could, or might) work this time. Most of the time, things are NOT different, if one looks carefully enough. That said…

Let me point out that this year has had its share of sudden large market moves that would seem to indicate that the old leaders are about to become laggards, and new leaders appear to be popping up — especially among sectors. Will this just be a pause of the old leaders, (the venerable ‘pause that refreshes?) or a possible fake out?

For clues, I like to look at the full complement of the major indices – especially the leaders within each index. With that in mind I look to charts of the Dow, the Nasdaq, Mid-cap, and Small-cap indices. In doing that, I find that although the Dow and the Nasdaq are appearing to struggle a bit, I note that the Mid and Small-cap groups are continuing to march higher. And that brings me to the finer delineations- the sectors.

Anyone paying attention has noticed the ‘Covid losers’ (think airlines and cruise companies) have enjoyed a mean reversion trade for a few days, and then just about the time one could think a trade really was needed, the move was over! And traders returned to the Covid winners (think Zoom and chip stocks) trade.  However, it appears that there actually is something different this time: there appears to be a vaccine!

The bottom line might be this: With at least two highly effective vaccines on the horizon, investors can start discounting a return toward more normal (normal?) economic conditions.  With that in mind it may be time to move away from the ‘work-at-home’- stocks, and toward the ‘normal’ economy stocks.

Guess we’ll see. 

 

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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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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