The market has delivered two months of strong back to back gains but we have only made up for the December losses. The larger losses of the entire 4th quarter of 2018 still linger and markets will have to deliver more than 2 months of gains to rebuild what was lost in the 4th Q. The economy is slowing here in the U.S. and most everywhere around the world. More struggles lie ahead for markets.

As of Late:

Last month we stated, "2019 is off to what is now known as the best start for the S&P 500 index in 30 years! Its been pretty amazing by any definition of: "a great start". This statement is still very true here at the end of February but please do not forget the to look back just a few extra months and realize the forth quarter (4Q) was truly rough on markets and also on buy and hold money managers.

So, this first graph looks at just the last three months and then in the second graph we will review the last 6 months. Hopefully your "market awareness" won't leave you surprised but generally people have a tendency to forget bad markets quickly and just use "hope" as an investment philosophy which seems nice but is not entirely realistic.

The S&P 500 for December, January & February.

The month of December definitely took its toll on stocks overall. As you can see above at one point the S&P 500 was down almost 15%. Then Christmas Eve the market started to make it's turn and it has taken the last two months to try and dig it's way out the December doldrums. This tremendously strong start to 2019 is what was needed to shake off the destruction of December. There is more that is needed not simply in terms of market performance but in strength to the underlying economy and the data does not support strength in the economy currently.

The S&P 500 for the last six months, September through February.

The negative impact of the 4th Quarter of 2018 is shown here as 2018 led into 2019. As mentioned above, even though the S&P 500 is having its best start in 30 years, it simply cannot outweigh the negative forces on markets exhibited starting back in October. As this graph above shows, markets fell just shy of 20% (technically an official bear market) and this multi-month spiral is likely more indicative of things to come in the months ahead.

A full year of the S&P 500 index. An extended time-frame of risk for returns of less than 3% of return.

Most investors are not 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 it did take the trophy for the best performing place for money last year. (Remember, we only found this out after the year was done!)

What is causing all of this softness and negative activity in the markets for the short and the intermediate term both? As we have stated a few different times over the last several months, global markets are suffering due to economic slow downs in various economies the world over. With the value of the U.S. Dollar having moved higher over the last year, it is difficult for countries around the globe to buy U.S. goods in a cost effective manor and use them in their local environments. The struggles of foreign economies over the last year or more is slowly beginning to take their toll on U.S. companies. This impact will grow over the next many months and usher us into 2020 with a great deal of softness to our own economy.

We remain watchful.

Ken Graves, Chief Investment Officer

Capital Research Advisors, LLC

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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.

What does the head of the Federal Reserve say about the economy?

"The U.S. federal government is on an unsustainable fiscal path, by which is meant that debt as a percentage of GDP is growing and now growing sharply — growing quickly — faster. And that debt is unsustainable by definition,"
- Fed Chair Jerome Powell said recently.

Click here to here his comments.

https://t.co/bmMQJXE1LI

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

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/

February rose and now stocks try to push off the larger losses of the 4 Quarter but the struggle is greater than a solid Jan and Feb can overcome.

Ken Graves, Chief Investment Officer

Mortgages:

IMPORTANT DISCLOSURES