Market insight and a highlight of Cabana’s year-to-date performance:
Cabana’s seven portfolios range from “Conservative” to “Aggressive” and include an income strategy and an “Accumulator” portfolio. Performance is as of market close on May 14, 2018 and is presented net of maximum advisory fees and commissions.
All Cabana Portfolios were up for the week. The Aggressive and Accumulator Portfolios led the way and returned +1.37% and +1.29% respectively. Solid performance the past two weeks has put all Cabana Core Portfolios into positive territory for the year. The Alpha Income Portfolio is close to seeing gains as well.
We concluded last week’s commentary by noting that equity markets have been churning between their 50- and 200-day moving averages. We also pointed out the positive fact that the 200-day moving average was tested three times and held each time since the early February volatility began. We stated that a break above the 50-day moving average could be another huge positive and evidence that a rally back to the January highs is in the making.
Then what happened? Well, as soon as we said it, stocks did just that. They broke out on Wednesday, May 9. The resulting three-day rally caused our algorithm to signal a rotation to a more bullish allocation. We reallocated the Accumulator and all Core Portfolios on Monday, May 14 (not including Alpha Income). What we are currently seeing is markets (stock and bond) confront and digest the reality of rising interest rates. So far, it appears that economic fundamentals are strong enough to withstand the increased input costs caused by increased borrowing costs. We have pointed out that 3.04% on the ten-year note was a significant point of resistance that we hit last week for the first time since 2011. That is a big number and is certainly reason for pause. At some point, we will reach critical mass and we will see earnings become affected. As I write this, the ten-year note has broken above 3.04% and is at 3.05%. The reason is an especially strong retail sales report on Tuesday morning, which may give the Federal Reserve ammunition to continue raising rates. Markets have sold off across the board in response. I cannot emphasize enough the danger in rates rising too quickly for the embedded costs to be absorbed. Our Central Bankers have a tight rope to walk to get the timing right for future rate increases. Unfortunately, history does not reflect favorably on their abilities in this area. They have a tendency to over shoot and kill bull markets. For now, selloffs are in response to otherwise positive data. So long as that is the case, we have a shot at new highs. When the selloffs begin to occur because of negative data, we will see the end of this very old bull market. We are moderately bullish.
Year-to-date net-of-fees performance:
ALPHA INCOME: -1.02%
Performance is presented net of the maximum advisory fees and commissions (2%). Numbers indicated with (+) for positive return and (-) for negative return.
-G. Chadd Mason, CEO
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