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“Summertime Has Typically Been Slow In The Markets.”

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     THE GOOD. May is over!

     THE BAD.  May was down almost 6%. 

     THE UGLY.  There is likely more of this to come so don't turn your alarm off just yet!


As of Late:


Summertime Has Typically Been Slow In The Markets.
 
     That’s a common theme that has been around as long as we can remember. But don’t fool yourself: Markets today are anything but slow. In fact, they have never been faster. That’s a result of the world-wide-web (WWW) and the information highway. Information is both obtained and disseminated faster than we can digest. That sets people up for “information overload” which, when taken at face value, typically leads to confusion.

     Today’s world view is anything but simple and that translates into the “open-market” in various ways. Information comes out via news wire, TV, internet, and of course the Twitter feed. That information is acted on by investment managers immediately through various applications, resulting in the buying and selling of securities. We know that as “moving the market.” And while information is important, it’s the actual price action that determines the end result.

     We are witnessing unprecedented times right now. Every day provides embedded “headline risk” that can potentially move markets. One interesting piece of visual information came across our desk just recently. It’s a combination of stocks, bonds, and a Tweet from our President. While it offers a very detailed view of recent market activity, it also provides a glimpse of the immediate future.
 
 
   The exchange-traded iShares 20+ Year Treasury Bond ETF (TLT) is representative of bond market prices going up and yields heading down, while the (SPX) is reflective of the S&P 500 index. When you overlay that on top of a picture and a Tweet, it exhibits that uncertainty we described above. 

 
What about US-China trade negotiations?       

     Another round of tariffs-talks between the U.S. and China has also unnerved many companies and disrupted their production plans. So far the damage has not escalated, but the longer the impasse goes on, the worse it will be for the economy.

And Mexico? Is it true that the U.S. is talking tariff possibilities with our southern neighbor?       
     The President said last week that he will levy a 5% tariff on Mexican exports starting June 10th, 2019 to pressure the government of Andres Manuel Lopez Obrador to block Central American migrants from crossing the border into the U.S. (That’s one way to build a wall.) Trump said the import tax will increase by 5% every month through October, topping out at 25%. Idle threats? Only time will tell.

 
     Information overload is real but it’s also debilitating. That’s where we come in. We take away the confusion, uncertainty, and decision making leaving you to digest one thing: returns.

     Our goal at Capital Research Advisors is to evaluate the markets, while at the same time evaluating risk. Without the two working together, you are left with an unbalanced approach to managing assets and that’s dangerous. Sourcing information is important but it’s the price that reflects actual results. Our portfolios react to price movements within the markets, not Tweets and newsfeeds designed to cause panic. We have the ability to go long or short the markets, thereby participating in both up moves and down moves in equities and bonds. It’s this methodology and discipline that allows us the “see through” the information that isn’t relevant and act on the information that provides results.

     At Capital Research Advisors, we understand that emotions are high and uncertainty is indeed…certain. We are always available to answer any questions or concerns regarding the markets.


Yours Truly, 

Jackson King, Portfolio Strategist

                        &   
Ken Graves, Chief Investment Officer
Capital Research Advisors, LLC
 
 

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 2018 and this model is 100% in money market.

Mid Cap Index.  This holding was sold in May 2019 and this model is 100% in money market.
 

Utilities
Medical Equipment & Devices
Precious Metals

Great Britain/UK
Energy Services


 Two High Yield Bond Index Holdings Long-Term U.S. Government Bond Index

Great High Yield Tax-Free Municipal Index holdings. U.S. Government Long Term Bond Index Holdings.


 

CaptialResearchAdvisors.com 

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

 



Mortgages:

Mortgages rates have dropped very quickly.  Though many people believe that rates have gone higher, they have actually been dropping a lot lately!  Rates are down almost a half of a percentage point in the last ninety days!  Stay tuned for possible refinancing of your home. This bond market is likely going to get more interesting! 

 
With all the gyrations of the market lately, where have markets been and where are they today?
 
     Taking heed to what Jackson mentioned in the main body of this newsletter, information overload really is a day to day issue that we need to fight against constantly. So we will look back over the last many months, even go back a year, and take a concise look at the markets and yes, markets have bounced around a lot.

     As we look at the chart below, we do see a lot of the gyrations mentioned in the title of the article but when those gyrations are not producing anything of significance in terms of returns to the investor, what is the point in "riding out" all the heaving of the markets? One article I saw in an industry publication was titled, "Is This Market Too Hard For Anyone to Figure Out"?

 
The S&P 500 for the last 12 Months

     So, we see in the graph the market did well overall during the summer of 2018.  Then late fall came (October 2018) and the market began to falter pretty hard, dropping almost 20% during that time.  Christmas Day must have brought some big change down the chimney since December 26th started a market rally.  The rally was not really much of a surprise, but the length and the short term strength of it was, as it stayed in place for the next four months.  Some rebound of the markets was expected, but the rebound from that 4Q plunge lasted longer than was calculated. Our early January calculations had it lasting no more than 90 days.
 
     Though the rally did last a full month longer than our quantitative model showed, the hard rollover in May wiped out all of March and April gains and we are currently backdated to mid-February on market prices.

     One of the major items which was "lit up" for us was the bond markets. Sometimes, not always, the changes in bond markets can tell a lot about what may be about to happen in the stock market side of the world. As the  stock downturn started in the 4Q, suddenly the bond prices stopped dropping and began to rise. Remember that when bond prices rise the yield on those bonds is also falling.  This rise in bond prices started in late October and continues on even into today.  This is why at the top of this column we highlighted the drop in interest rates for mortgages.

     Last month in this section, the final item I mentioned was "seasonality".  Yes, in the investment world it is the famed time of the year known as seasonality and it just started in May.  It is a great cycle to watch unfold but its occurrence does not come with 100% certainty.  Some investment managers even scoff at seasonality.  It is when the "buy" sign of stocks goes away and the "sell" sign comes on.  At CRA, we actually use a quantitatively built version of seasonality as a backdrop or secondary factor to two of our broad-based equity models. 

     So, the time for seasonality is here and based on what we just saw happen in markets during May, seasonality may cause some naysayers to be in for a big surprise this year! 

     Stay tuned! 



 


 

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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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