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January started off with a bang, and while it was the best start in 30 years, it was not enough to make up for the losses in December which were the worst in almost 40 years.

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    January brought a needed sigh of relief to buy and hold investors after the large downturn they suffered in December (as well as in October but more on that later).  Though January was the best start to a year in 30 years, our expectations are that the excitement is a little too much and a good bit too soon.  The lingering problems currently laying in the background of many economies around the globe will surface here in late winter and early spring as many issues begin to unravel.

As of Late:

     2019  is off to what is now known as the best start for the S&P  500 index in 30 years!  Pretty amazing by any definition of: "great starts".  The odd thing is that this great start still grew less than December sank!  January rose quite nicely and the bottom-line is this for buy and hold investors, now is not the time to be thinking "all is well".  Here is the biggest reason why: U.S. corporate earnings peaked at the end of the 3rd quarter of 2018 and so the thought going forward is that corporate earnings will be lower, but no one is sure how much lower.  Additionally, we have been told by the IMF (International Monetary Fund) that global growth is slowing again and it was already lowered back in October of 2018.  On the heels of the IMF pouring cold water onto the growth fire, China has also come out and said their economy continues to slow and the slowing in China will get worse in 2019. All of these details have really come to light in the month of January and none of it is good news.

     Before we get too far ahead of ourselves by trying to look at the future, we will review the present day status of markets and see where we really are.  As I was talking with another investment manager in the last week, I made a comment to them about where the markets are for the last 6, 12 and 15 months.  He asked, "Are you sure?".  I was really a bit stunned that his awareness of the current status of markets was not sharper than it was.  He really had no idea that the stock market in general had not made any money for the last year.

 
     This first graph shows S&P 500 for the last two months, December and January combined. Markets are down some, but nothing big.


     This second graph shows us the S&P 500 for the last four months, October through January and a noticeable difference in the losses from the last two months.
 
     This next graph below shows the last thirteen months of the S&P 500 index and this is where I scratch my head.  Most people think the "markets have been doing great" and yet, over this time-frame, the S&P 500 index has gone a lot of places but on a buy and hold basis, it has not made any money for buy and hold investors at all.

     If you are under the impression that things are going rather well with the markets, I am not surprised you might think that.  So often I have people say to me, "The market is looking good right now, eh?"  Or, "The market is making your job easier these days, isn't it?"

     When we review the data/graphs above, we clearly see markets are not doing well overall and we also see the struggles of the markets are not based on a single event or problem but are actually somewhat spread out over time. Early on in 2018, specifically late January and early February, markets took a nice dip and were down about 12 percent somewhat quickly. From mid February till June, it seemed that markets were not sure if they were going to grow or not as they wobbled between gains and losses. Late in June, stocks went on a three month march higher and had amassed gains of about 8 percent in 2018 by the end of September. Then, in early October, the markets just seemed to "break" and began a three month drop of almost exactly 20 percent!

     These downturns in stocks are not really the problem but they are the indicators or results of the problems affecting stocks and stock prices. Many of these problems are clearly announced and laid out for any interested person to see and study, but it seems complacency has set in for many investors and the lessons from the beginning of this century, as well as those lessons from 2008, are not kept presently in mind so many buy and hold investors may simply suffer the same fate many of them had back during those time frames. 

 

Bonds:


     When it comes to people generally misunderstanding where markets are, bonds are certainly no different.  I constantly hear people making statements about interest rates being on the rise or interest rates moving up.  Actually, when we look at interest rates, they have been dropping!  Interest rates, when measured by the 10 year U.S. Government Bond, are lower today than they were just 90 days ago, dropping by more than 15%.  We also see bond interest rates are lower than they were 6 months ago and even 12 months ago.  So, though many people believe interest rates are rising, they are actually falling over most any recent time frame.  You can click on each graph and it will enlarge for you to see the drop in interest rates over the last many months.



    Due to all the issues facing global economies and the declining profits across a whole host of many U.S. companies, this is not a time for complacency; it is truly a time to be very watchful.  The losses in stocks over the last few to several months and even beyond 12 months is notable and should not be ignored.  The dropping of interest rates is a strong indicator of a likely canary in the coal mine as well.

We remain watchful.
Ken Graves, Chief Investment Officer

Capital Research Advisors, LLC

 

CaptialResearchAdvisors.com 

Capital Research Advisors, LLC, 
4185 B Silver Peak Parkway, 
Suwanee, GA 30024 
770-925-1000 
800 -767- 5364 
All rights reserved

 


Mortgages:

Many people believe interest rates are rising. They are NOT rising.  They did for a short time but they are coming back down quickly.  Mortgage rates seem to be dropping down as of late. 
Stay tuned for a possible opportunity to refinance.



Shutdowns:
 
     No one likes a government shutdown.  Everyone knows a few things about them before they start.  First, they won't last.  They always have an end and they are done to try to get someone to move, budge, change their posture, etc.  Second is that they are always and only about "non essential" functions of government.  It is not a "who cares" scenario but people believe that nothing really critical to day to day life is going to stop. 

     The first government shut down was back in 1976 and it was carried out by Gerald Ford.  He didn't want something in the budget that the House and the Senate wanted so the government was shutdown over this.  Turns out, the House and Senate wanted it more than the President didn't want it, they had enough votes to over power the President's veto and so they did. The shutdown ended and the president seemingly lost.

     The most recent shutdown was the longest in history. 35 days.  Then this current president basically called a timeout, an intermission so another the "second half" is slated to occur in mid February.  This president has also overseen the shortest shutdown in history. 1 day. Did anyone notice?  Likely not.

     What appears to have happen over time is that stock markets may have been worried about them when they first started occurring and in the list below you can see during many of the early shutdowns, stock markets went down during the shutdowns. 

     In the more recent years, stock markets have seemingly not take shutdowns too seriously and typically they have risen during most of the recent shutdowns.  The interesting point here is this: The most recent and longest shutdown also produced the biggest gain in the stock market!  So much for taking it's toll on the economy!  It most certainly took it's toll on those who did not get paychecks but overall from what is known so far, no larger damage to the economy was done.

     Stay tuned for the "Second Half of the SHUTDOWN".  If it even happens.  


     



 

 We currently have holdings for our clients based on the following in the six models we use most:
  

Small Cap Index/Russell 2000.  This holding was sold in very early October and this model is 100% in money market.

S&P 500 Index has been sold.
SMid Cap Growth Index This was sold in early October and is 100% in money market.


Utilities 

Our newest position is in Precious Metals.
Great Britain 
Long U.S. Dollar has been sold

High Yield Bond Inverse Position
High Yield Bond Index

Long-Term U.S. Government Bond Index

High Yield Tax-Free Municipal Index -Our most recent reallocation.
U. S. Government Long Term Bond Index

     

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This report/summary is to be considered general in nature, reflects our opinions and is based on our best judgment at the time of writing. All information is deemed to be from reliable sources but we cannot guarantee its accuracy. No warranties are given or implied as to their promise of occurrence in the future or their accuracy. It is the readers’ responsibility to decide if any of our opinions are suitable for their own individual situation, and in what manner to use the information. No specific decisions should be made based on this report. These opinions should not be construed as a solicitation for any service. Past performance does not guarantee future results. The opinions expressed in this piece are those of the author and do not necessarily reflect the opinions of Ceros Financial Services, Inc.

Securities offered through Ceros Financial Services, (Not affiliated with Capital Research Advisors, LLC) 1445 Research Boulevard Suite 530 Rockville, MD

(866) 842-3356 Member FINRA/SIPC

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IMPORTANT DISCLOSURES

All the information in our newsletter is believed to be reliable and much of it is based on the proprietary research of Capital Research Advisors, LLC itself. However, because of the volume of information we review and the frequency with which it changes the information can only be provided as is on a best efforts basis. The information is not intended to be actionable investment research and therefore should not be used as such. Sources for this information include, but are not limited to, CBS MarketWatch, Big Charts, Bloomberg, Streetscape, Money/CNN, Futuresource, Stock Chart, Yahoo Finance, AmiBroker and http://www.newyorkfed.org/

CaptialResearchAdvisors.com

Capital Research Advisors, LLC,
4185 B Silver Peak Parkway,
Suwanee, GA 30024
770-925-1000
800 -767- 5364
All rights reserved







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