Just over a year ago that was the ubiquitous headline on all news outlets: Television, newspapers, radio — it was everywhere.

And for good reason actually. It was in fact the single largest point decline in history. And because journalists are addicted to superlatives, they were thrilled to beat us over the head with it. And because we like to beat journalists over the head with reality, let us mention that very little of that big point drop story bothered to mention that the 3k drop was not anywhere near the biggest single day percentage drop. That distinction is still owned by October 19, 1987 when the Dow lost 22%. Last year’s ‘killer drop’ of 3000 was about half of the ’87 loss. OK, it was a big deal but…context is everything. Last March had more rocky roads than Ben & Jerry’s and the day that preceded the 12.9% drop had printed an 8.5% gain. With that huge bump I began to think the bottom was mostly likely in. Boy, was I wrong on that one!

Back in mid-February I was not overly concerned when we saw the pandemic first become national news. History had shown us that every other pandemic had seen stocks rise as the virus became national news. AND at the market’s all-time high few a few weeks prior, the market was looking pretty solid.

At the end of Feb, 2020 with the Dow at 25,500 it looked like a trading low was in. Nope, not to be. Then on March 9th with the Dow down another 6% our models were totally washed out indicating (most likely) that a powerful buy signal was about to unfurl – perhaps something like Dec 24, of 2018. (Which led to one of the greatest investing years in recent memory.) At that time the Dow was at 23,800 about 21% off of the very recent all-time highs.

It finally bottomed on March 23rd, at 18,613- ending the drop from the all-time high five weeks earlier to a total drop during those five weeks of -36.3%. At that time, from the headlines, it appeared that no one ever wanted to be an investor; EVER again.

Anyway, about a year ago my day was NOT a fun day. I kept shaking my head and thinking that somehow, somewhere I had missed something in my analysis. It was somewhat unnerving to hear really emotional people calling for the financial markets to be closed. But with that headline, I believed fairly firmly that the bottom was finally in.

It was really hard to see through the worldwide health crisis and staple shortages. (Even toilet paper shortages!) and our conversations with clients took on a whole different color. Money was no longer a primary concern — people just didn’t want to think about dying.

Since my earliest days in the business one theme that has stuck during ‘waterfall’ declines is, if you weren’t either smart or lucky enough to take action very early, it rarely paid to throw in the towel and end the pain. And so, we did some pruning and missed the really deep losses as we watched for stronger buy signals- which we gingerly followed. The phrase of the day was ‘this too shall pass’.

Today (March 25th) the AZ governor discontinued the statewide request to wear masks, and it appears that we will be moving back toward normalcy. And once again Ms. Market has given us something that never happened before.

Ron’s Market Minute – Just Bearly

Since last March, with every little pullback, it’s not hard to find some pundit writing about how (in their opinion) the next big bear market is about to begin. With that in mind, I thought it would be a good time to look at a chart (Although it’s usually a good time to look at a chart!). When markets are headed upward, investors typically feel comfortable taking on more risk. We see this reflected in Small-Cap activity. When markets are headed downward, investors usually feel less comfortable with risk, and therefore invest more of their dollars in the large-caps- those big companies that seem so secure and stable as an investment.

6 mo. graph smallcaps vs largecaps as of 3-25-21 Source: FastTrack data

So…let’s have a look at a chart in the upper part of the graph, of US Small-cap stocks – in red vs. US Large-caps -in green- over the past 6 months. Notice two things-1. it’s pretty clear from the upper half of the chart that both small and large stocks are generally trending up, and 2.  From the lower part of the graph that shows relative strength, that not only are the small-caps doing better than the large-caps, but their strength- vs. the large-caps, is getting stronger. Both are going up, but the smaller caps are going up faster.

It’s not impossible, of course, for things to change. On the other hand, it would be extremely unusual for a bear market to begin when there is so much strength in the small-cap part of the markets. 

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


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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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