A simple view of the markets, The Good, The Bad & The Ugly.

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     THE GOOD. The stock market, namely the S&P 500, was up in March.  Three months in a row the stock market has been up and it was the best start to a year in the last ten (10) years. 

     THE BAD.  This great start to the 2019 followed the 4th WORST end to a calendar year (2018) ever and when the market was up in the first three quarters, the 4Q of 2018 was the worst period. 

     THE UGLY.  If people had stayed fully invested during the 4Q of 2018 and the 1Q of 2019, they lost money in the stock market.  Mostly with Risk, and nothing but a loss to show for it.

As of Late:

     The Good.  
     During March, the S&P 500 did indeed move higher for stocks.  While the advance higher was at a much slower  pace than it was in February and in January as well, it was still a positive month for stocks overall.  However we are seeing additional areas of concern.

     As we look at this graph above, it is easy to see that stocks started to struggle as the month began and they were down just over 2% early in the month, only to turn and rise nicely over the two middle weeks of the month.  Then stocks turned down for a few days but did finish the market higher for the full month. 

     While this has been the best start to a year in the last ten years that does not tell the full story of what is going on with stocks at this time. We will discuss more of the concerns the markets are showing in the next section, The Bad, below.

     This increase in volatility we saw in March is always welcomed by "traders" but can be an area of concern for those who consider themselves to be investors.  It is the view of Capital Research that there is more volatility to come which creates more angst by investors.  Just as a side note, famed investor Warren Buffet currently is holding just over $110 Billion dollars in cash waiting for a better buying opportunity.

     The Bad.
    Above we noted our review of March and the positive performance.  This only tells the story in it's most short term time frame. 
       The March performance being the best start to a year in the last 10 years, also followed 4Q 2018, the worst year end EVER when the first three quarters of a year were positive.  2018 finished the year down just over 7% and yet as we closed out the 3Q on September 30th, it was up about 9% at that point.  The final quarter of 2018 really took it's toll on stock returns for the full year of 2018 and our view is that it is a precursor of more to come.

     So we can look and see that "The Good", as strong as it was, did not outweigh "The Bad", something that can be true in some junctures in life.  Sometimes we just have to look forward to what lies ahead and focus on the future while still remembering, "Hope is not an investment philosophy".

     As you can see in this graph above, the strength of the market, evidenced by the trajectory changes, is beginning to fall away and there are other smaller elements behind the scenes  that underscore the deteriorating trajectory and failing strength of stocks in general.

     This all leads back to something we have been talking about the last many months.  The "rate of change" changes and if the rate of change is slowing, it is clearly time to pay attention.

     So what did this great start to 2019 do for stock investors as of late?  When we view the market over an additional 90 days, (4Q of 2018)? Not much really.  It did lessen the losses in 4Q but it has truly lead to no gains over the last six months.  

     Many people think the stock market has been going "gangbusters" for the last long while and yet, the numbers simply do not bear this out.

     Last week, as I sat with a client reviewing his account, he said he thought the S&P 500 was up about 17% in 2018.  I grinned and he quickly asked, "Am I way off base?"  I nodded my head with an even larger grin.  "Was it up half that last year?" as I shook my head no.  "It was negative by that halved amount", I replied.  "It lost money last year?", he said with a big question in his voice. "It did for sure", I confirmed for him.

     This type of conversation has been repeated so many times lately.  For us, it is scary.  Being well aware that many people have their work based retirement plans on "cruise control" and if the 1Q had been down as much as the 4Q had been, real damage could have been done to major portions of people's retirement funds while they were busy with life, work, family, travel and other areas of life. 
The S&P 500 for 2018 and 2019 thru March.
aware that the #1 asset classes in 2018 was not made up of stocks nor of bonds.  The best performing investment class was simply cash. The interesting thing about cash is that it is not "risk-less", it is subject to opportunity risk as well as inflation risk.  In 2018, cash did take the trophy for the best performing place for money last year. (Remember, we only found this out after the year was done!). Most investors are not aware of this and many don't even consider cash an asset class, though it clearly beat them all last year.     

We remain watchful.

Ken Graves, Chief Investment Officer

Capital Research Advisors, LLC 

Capital Research Advisors, LLC, 
4185 B Silver Peak Parkway, 
Suwanee, GA 30024 
800 -767- 5364 
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Many people believe interest rates are rising. Rates are NOT rising and if you look at our mortgage tracker rates are lower today than they were six months ago AND twelve months ago.  They did rise for a short but they are coming back down quickly. 
Stay tuned for a possible opportunity to refinance.

What is happening with bonds?
     Stocks seem to dominate so much of the investment landscape in terms of all the media attention they get but, stocks don't rule the world, bond do.

There are less than 4000 publicly traded stocks in the U.S. and they represent about $20 trillion in total value. But the bond universe is HUGE by comparison.  It's current value is more than $41 trillion and there are hundreds of thousands of issues of bonds. 

Since it is so big, we thought we would review how the bond market has been doing lately.  Remember, when interest rates go up, the price of the bond goes down.  It is a one:one relationship, just like a seesaw on a playground.  At the beginning of 2018, so many of the talking heads on Wall Street were saying (again) that it was time for interest rates to start rising.......... a lot.  Many said the U.S. Government 10 year bond would see interest rates go up to between 3.5% - 4% before the end of 2018.  These 10 year U.S. bonds started the year at about 2.4% so if they rose to 3.5% or 4%, that would be somewhere between a 40% - 60% increase in the cost of borrowing money!  A huge swing for sure and guess where all that money would go...... to the banks. 

     So while interest rates did spike up some, they did not get anywhere close to what the talking heads of Wall Street forecast and by the end of 2018, interest rates were almost back down to where they had started the year.  This year though, they have fallen even farther.

     Click on this graph below and see how bonds did as compared to stocks over the last six months.  Pretty astounding performance by bonds.  10 year U.S. Government bonds rose over 8% during the last six months and stocks are still flat to negative during that same time span.  CRA clients have held a fair sized portion of bonds in their accounts during this entire time.


 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.

We own positions reflecting the Mid-Cap 400 Index.
Our only broad equity position.

Medical Equipment & Devices
Precious Metals

Great Britain/UK

We do have a new equity position soon to be added here, stay tuned.

 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.

On the job front:

Year to date, the auto industry has laid off 15,887 people in 2019 and the energy industry has laid off just over 10,500 people this year as well. Why? The U.S. economy is slowing.

Some evidence that the U.S Economy is slowing and that it is catching many off guard!

Click to enlarge this graph to see what it is telling us.

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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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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

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

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Capital Research Advisors, LLC · 4185 B Silver Peak Parkway · Suwanee, GA 30024 · USA

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