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March 8, 2019 
 
I was thinking this is more of a Rodney Dangerfield kind of market         
     
While investors are working themselves into a frenzy about whether or not the current stock market rally is about to go into hard reverse, there are a few things to keep in mind.
 
The overhead level of resistance for the  S&P 500 is 2800; the commonly accepted number that stocks would either breach and move higher or would smack it like a ceiling and fall. The latter just happened.
 
The yield curve (the difference between short and long term Treasury yields) narrowed.
 
The ECB (European Central Bank) is once again having to pull more stimulus tricks out of its hat.
 
Chinese economic stats were reported to be much worse than expected.
U.S retail sales over the all-important Holiday period were weak.
 
U.S. GDP is meh.
 
U.S. economic activity slowed sufficiently to get the FED to back down from its "normalization" goal.
 
Stocks just posted their worst week so far this year, for a 5-day losing streak as investor sentiment turns sour.
 
I could go on about the reasons why the global economy is slowing and why investors find fear and loathing every time they look at stocks, despite the strong, double digit advance in the major averages during the first two months of this year. The lightning speed in which stocks entered bear market territory at the end of last year and then bounced back this year, so far, is leaving a lot of investors wondering how we got to this point. And now that the rally is fading, for now, anyway, I'd like to turn your attention to a post by Nick Colas of DataTrek Research. This is the best thing I've read that explains late last year and early this year. I think Nick's research and perspective are spot on.
 
From his post:
 
As we looked at the performance for 2018's losers we got to wondering, "Which S&P 500 stocks are 2019's biggest winners?"  We arbitrarily cut off this list at a 40% YTD gain and also pulled the data for how they performed during just December 2018. Here is the data, starting with the best performing name and working our way lower:
  • Xerox (XRX): +56.1% YTD. December 2018's return: -37.7%
  • Delphi Technology (DLPH): +52.2% YTD. December 2018's return: -16.2%
  • HanesBrands (HBI): +45.8% YTD. December 2018's return: -21.2%
  • Mattel (MAT): +45.8% YTD. December 2018's return: -28.2%
  • Xilinx (XLNX): +42.5% YTD. December 2018's return: -7.9%
  • Chipotle (CMG): +42.1% YTD. December 2018's return: -8.8%
  • Hess (HES): +40.1%. December 2018's return: -24.8%
And the averages/comparisons to the S&P 500:
  • Average for these 7 names: +40.6% YTD. Their average December 2018 price return: -20.7%.
  • For reference: S&P 500: +10.6% YTD, December 2018's return: -9.2%
Nick adds: That's how you end up with Xerox as the S&P's top stock for the year. This is a name that hasn't gone anywhere for half a decade, after all.
 
Readers will recognize this phenomenon as the "January effect", but at least for 2019 it is more like the "January and February effect". A look at the 8 winning names from the list above shows that all of them reached peak YTD returns in the second month of the New Year, not the first. We attribute that to the unusually large amount of tax loss selling in December 2018.
 
Back to Mitch: Xerox being up the most isn't exactly what I would call inspiring, as this is not a super high quality name. In fact, the list above is filled with second and third tier stocks, with Chipotle as the exception. As a branch manager used to say to me about stocks like these, "these are the ones you borrow, not own". I call this the Rodney Dangerfield rally because it gets no respect. Nick calls it the George Costanza rally for basically the same reason.
 
In summary, once the January effect wears off, investors will have to find something else to lean on. From my nearly 30 years of financial industry experience, rallies built on lower tier stocks could be powerful, but they're not the ones to hold onto. 
 
I'll send you to Nick's excellent post now: https://datatrekresearch.com/the-george-costanza-market/ 
  
Follow Nick on Twitter so you don't miss any of his posts: @DataTrekMB  

New Video! ETFs vs. Mutual Funds: Which one is better?
 
ETF's vs. Mutual Funds: Which one is better? 
ETFs vs. Mutual Funds: Which one is better?
 

 
 
New video! Is time to sell stocks after such big move higher?
 
Time to sell stocks?! After such a big rally, here's how to decide.
Time to sell stocks?! After such a big rally, here's how to decide.
 
 I went to a LinkedIn Local event and this is what happened (Video):
 
LinkedIn Local! I went to one and it was awesome! Here's what happened. 
LinkedIn Local! I went to one and it was awesome! Here's what happened.
 
 
On another note, I'm getting my video reps in on YouTube, something I've been looking forward to doing for a long time. Please head over  there now and check out a few videos. They're all about 2 minutes in length. And while you're there, please thumbs-up the videos you like and subscribe to my channel. Thanks! 
  
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Thank you for taking the time to read this!
Mitch
 
 
I opened ClientFirst Strategy, Inc. because I believe that the only way to help my clients potentially achieve their goals is by offering unbiased advice & investment management expertise. To my clients, thank you for your continued vote of confidence. If you are not a client but would like to explore the possibility of becoming one, I invite you to call me directly, visit my website, join my email list, and/or connect with me on social media.      

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All the views expressed in this report/commentary accurately reflect our personal views about any and all of the subject securities or issuers and no part of our compensation was, is, or will be, directly or indirectly related to the specific recommendations or views we have expressed in this report. This material is not intended as an offer or solicitation for the purchase of sale of any security or other financial instrument. Securities, financial instruments, or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from securities or investments mentioned in this report may fall against your interests, and you may get back less than the amount you invested. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. You should consult with your tax adviser regarding your specific situation. Diversification is a method of managing risk and doesn't protect against loss in a down market. 
  
  

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