A Tale of Two Markets: Market Commentary from Cabana’s CEO – March 31, 2023

6 months ago

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Last week we did our monthly webinar for our partner advisors around the country and attempted to do a deep dive into what is going on in this crazy market. We pulled quite a few charts and took a look at what is driving the market on the up days as well as the down days. It is very easy to see the headline news (which tends to focus only on the market cap weighted indices like the Nasdaq, S&P 500 and Dow). Unfortunately, these indices really only reflect the performance of a relatively small segment of the overall market-namely mega cap technology stocks like Apple, Microsoft, Google and Amazon. Of course, there are others included but these indices are heavily skewed toward the biggest of big companies. This presents a problem in accepting as gospel their short-term performance, whether good or bad.  

At Cabana, we use the equal weight S&P 500 as our benchmark because we believe it gives us a better picture of what is going on in the whole economy. Suffice to say the equal weight index has far underperformed the market cap weighted indices over the last month. This gives us an important clue that big tech has been the leader and the majority of the market has been left behind. This is generally not a good sign. The stock market does best when everyone is participating and that has not been the case recently. Technology stocks got pummeled last year as interest rates skyrocketed and are now bouncing back on the possibility that the rate hikes are coming to a conclusion. This two-way trade does not in and of itself mean the economy is getting better. In fact, it seems to suggest that the economy is going to do much worse and the Fed will have to lower interest rates to deal with a recession. 

So, this week I thought I would provide an outline of what we talked about last week and are looking at going forward. Understand that this webinar took place last Thursday and things are dynamic. The bottom four charts reflect real estate (where most people have their largest investment), the financial sector (banks), which is critical to economic growth, the transportation index, which is a bellwether for the economy, and makes up half of “Dow Theory” and the Dow industrials, which makes up the other half. In my opinion, these are some of the most important engines within the broad economy. They are currently far underperforming and a cause for continued caution. 

At Cabana, we remain bearish and in our safety valve allocation. 

Advisor Webinar Market Highlights:   

  • A tale of two markets: Nasdaq and SPY versus the rest of the market.  
  • The selloff over the past two weeks being on huge volume v. the small volume rebound over the past few days is something to note. Is it a dead cat bounce?  
  • Yields collapsed in a flight to safety and credit spreads are widening. 
  • The yield curve remains inverted and lending conditions are likely to tighten in the face of bank problems.  
  • VIX remains elevated above 20 and spiked above 30 last week.  
  • Commodities are falling. Commodities are typically the last asset class to fall before bonds prices turn up, followed by stocks. 
  • Despite the recent bank failures, the Fed raised interest rates 0.25% yesterday in the fight against inflation.  
  • The market responded by dropping 3% into the close after being up 1% during the day Wednesday.  
  • Recession or no recession?: If we enter recession, odds are the lows are still ahead of us. If not, then a new bull market is on the horizon.  
  • The second quarter may give us our answer, as interest rate hikes beginning last year have made their way into the economy. 

Recession or no recession? These are the areas we are looking at:  


June 22, 2022

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