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A Return to Patterns of 2023: Market Commentary from Cabana’s CEO – January 29, 2024

3 months ago

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The new year has started off with a return to the patterns of 2023. Interest rates have jumped, on concerns that the Federal Reserve (the “Fed”) will not cut interest rates as quickly as hoped. During the fourth quarter of last year, the bond market priced in a nearly 70% chance of a March rate cut. That has now dropped to less than a 50% chance. This has put pressure on almost all assets, most notably bonds and other interest rate-sensitive sectors. There has been quite a bit of cheering over the market-cap weighted S&P 500 touching a new high (SPY), but the reality is that the gains in that index this month do not reflect the broader market. It does reflect the continued outperformance of technology, particularly the “Magnificent Seven” that carried the market-cap weighted indices (QQQ, SPY, and DIA) most of last year. I have included a chart below, which evidences what I am talking about.  

Source: Stockcharts.com as of 1/25/2024 

To me, this indicates we are still in a holding pattern, while waiting for further hints from the Fed. Incoming data continues to evidence strength in the labor market and in the consumer. Fourth quarter GDP came in way above forecast and suggests a “soft landing” as growth ultimately slows due to restrictive interest rates. What that good news does not provide is much impetus to cut rates. The Fed cuts rates to stimulate the economy when it needs help. Right now, it does not seem it needs much help. This analysis is resulting in a moderate digestion of the big gains we saw across the board in November and December. I believe this is all to be expected and not a bad thing. I am happy to have the prospect of rate hikes off the table knowing the next move will be to cut. I also like the fact that we seem to be able to do business and grow earnings at the current interest rate levels. The 10-year Treasury Note is just north of 4% and consistent with historical averages. After the past two decades of printing money and driving rates down, we are seeing some return to normalcy. There is still a record national debt to deal with, as well as consumers spending money they don’t have, but at least retirees and others can get a fair return on their safe money.  

On Friday morning, we got the all-import PCE inflation number (which came in slightly below expectations) and this Wednesday we will get the conclusion of the January Fed meeting. I suspect the next week will determine the glide path forward for interest rates, as well as most asset classes, for the first half of the year.  

At Cabana, we remain in our Transitional Bullish Scene within CARA and are invested across all portfolios accordingly. 

Key terms:  

  • Magnificent Seven is a nickname for seven mega-cap tech companies whose stocks routinely do well.   
  • CARA is Cabana’s Cyclical Asset Reallocation Algorithm.  
  • QQQ is an exchange – traded fund (ETF) that tracks the Nasdaq 100 Index.   
  • SPY is an exchange-traded fund (ETF) that tracks the S&P 500 Index. 
  • DIA is an exchange-traded fund (ETF) that seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average (the “DJIA”). It tracks the performance of the 30 largest U.S. companies by market cap. 
  • Soft landing refers to a moderate economic slowdown following a period of growth. 
  • Bullish (or a recognized bull market) is a period of time in financial markets when the price of an asset or security rises continuously. 
Disclaimers

January 17, 2024

This material is prepared by Cabana LLC, dba Cabana Asset Management and/or its affiliates (together “Cabana”) for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This material may only be distributed in its original format and may not be altered or reproduced without the prior written consent of Cabana. The opinions expressed reflect the judgement of the author, are as of the date of its publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cabana to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cabana, its officers, employees or agents.  

“CARA” is Cabana’s Cyclical Asset Reallocation Algorithm. Scenes assigned as per the judgment of The Cabana Group. Scene names and number of scenes have changed over time in an effort to obtain efficiencies and provide clarity of investment objective. 

This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal.  

Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX. The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV Part 2A or Form CRS. A copy of which is available upon request or online at www.adviserinfo.sec.gov/. 

Past performance is no guarantee of future results. All investment strategies have different degrees of risk and the corresponding potential for profit or loss. Asset allocation and diversification will not necessarily improve returns and cannot eliminate the risk of investment losses. “Target Drawdown” is merely a descriptive term used to describe the general strategy and objective of the portfolio, it is not a guarantee, nor should it be construed to suggest safety or protection from loss. There is no guarantee that portfolio performance will remain consistent with the targeted drawdown parameter. While risk tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account and there is no guarantee that Cabana’s strategies will be suitable for any investor. Investors and advisors should not simply rely on the name of any portfolio to determine what is suitable. It is the responsibility of investment advisors to determine what is suitable for their clients. Cabana manages assets on multiple custodial platforms. Performance results for specific investors will vary based upon differences in associated costs and asset availability.  

Cabana claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a trademark of the CFA Institute. The CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS Report and/or a firm’s list of composite/pooled fund descriptions please email your request to info@thecabanagroup.com.

All recommendations made in the prior 12 months are available upon request. Cabana’s allocation history is available here. For additional information regarding our services, including performance disclosures and award methodology, please visit https://thecabanagroup.com/disclaimers/. 

Commonly used index/benchmark definitions:  

All indices and categories are unmanaged and an individual cannot invest directly in an index or category. Index returns do not include fees or expenses. Benchmark indices will likely materially differ from Cabana’s portfolio strategies. Detailed information as to how the returns are calculated can be obtained online from the following link: https://thecabanagroup.com/disclaimers/performance-reporting-methodology/. 

Morningstar’s Moderate Target Risk index  follows a moderate equity risk preference and is based on well-established asset allocation methodology from Ibbotson Associates, a Morningstar company.  

Morningstar’s Tactical Allocation category includes portfolios that seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. 

The S&P 500 Index is a market-capitalization weighted stock market index of 500 widely held large-cap stocks often used as a proxy for the U.S. stock market.  

The Russell 2000 and 3000 indices are market-capitalization weighted stock market indices that include, respectively, 2000 and 3000 of the most widely-held stocks and are often used as proxies for the U.S. stock market. 

The Nasdaq Composite Index is a market-weight capitalization index that covers more than 3,000 stocks listed on the Nasdaq Stock Market. What is the Nasdaq Composite, and What Companies are in It? | Nasdaq