A Year Unlike Any Other: Market Commentary from Cabana’s CEO – December 22, 2020

7 months ago

  • Share this:

Well… 2020 just can’t end soon enough for me. COVID just keeps coming – and in novel ways. We are now faced with the emergence of a new and particularly contagious strain that appeared in the UK over the past several weeks. The situation is bad enough that the entire country has shut down and travel is banned from there to most of Europe. Dr. Fauci reported today that the mutation is likely already here in the U.S. as well, simply adding to the absolute necessity of getting vaccines manufactured, shipped, and administered to millions and millions of people across this country. The fact that we finally (after some six months) got a stimulus bill passed in Washington to help small businesses and everyday people, just doesn’t seem to matter much. The positive impacts of the agreement were already priced in by investors weeks ago, so Monday’s news is not enough to push major indices forward in the face of our current reality. In addition to record breaking infections and deaths each day, we are seeing unemployment claims jump precipitously as new shutdowns are being put in place. I can go on and on, but all of you are well aware of where we stand as a society. I remain amazed that markets have been as resilient as they have.

Technology has provided humans worldwide the solution to living in the world of a pandemic. We always find a way, and this time technology was it. As a result, we have seen big tech pull the major market cap weighted indices forward. All other sectors have lagged far behind. Earnings remain negative year-over-year but appear to be bottoming. Earnings drive bull markets and we will remain in a fundamental bear market until we see earnings turn positive. Stock markets are forward looking, so it is not surprising that equity markets would begin to move up in anticipation of rising earnings in the future. In fact, this is the norm and why I have been watching for signs that this phenomenon is occurring. We have been watching for participation in sectors typical of a growing economy, which include cyclicals, consumer discretionary stocks and industrials. Technology alone cannot sustain a cyclical bull market. People need jobs and income to support our economy. Unfortunately, the vast majority of those jobs come from sectors other than technology. We have pointed out before that we finally saw the S&P 500 equal weight index (RSP) begin to outperform the S&P 500 market cap weighted index (SPY). This is strong evidence that investors are shifting money into companies other than big tech, which has been the go-to default trade throughout COVID. Normally, technology is a mid-cycle bullish trade and certainly not considered a “safe” trade. Currently, risk is completely controlled by COVID and technology is the one clear defense. As a result, people are buying technology as a defensive position, all the while knowing it also does well during bull markets. Investors have taken the position that it is a “can’t lose” trade. I am typically very skeptical of “can’t lose” trades, but it is something to think about moving forward. Is this tech trade the new normal? Can we just buy the five FAANG stocks and forget about everything else? I don’t think so. The world changes slowly and in fits and starts. COVID-19 has certainly increased our reliance on technology, but I do not believe it has rendered the rest of humanities endeavors obsolete. Other jobs, services and passions still matter and support most households nationwide.

As this historic year comes to a close, it seems we are near the top of this very slippery and steep mountain that we began climbing in February. Technical price resilience supports this conclusion. Our country is facing a logistics problem not seen since World War II in finding a way to deliver the vaccine. It is a race against time. I have every confidence that we will get it done, as we always have. The bigger question is just how many people (and businesses) we lose in the interim. There is no consolation in losing a loved one or in losing a business you have built over a period of years. Those losses will define the end of the great recession of 2020 and when the next cyclical bull market begins.

Download a PDF of this commentary at the following link:

Disclaimers

February 23, 2021

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 CabanaThe 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.  

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 2. 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.

The COVID-19 health epidemic has had substantial global economic impact on financial markets. As of March of 2020, restrictions to travel and business spanning the economy for activities not deemed essential have been imposed throughout the United States. These restrictions have caused unprecedented volatility and uncertainty in capital markets and have negatively impacted the economy. It is unknown how severe the impact to the economy and capital markets will be if the epidemic persists for an extended period of time. The epidemic may have a material adverse impact on Cabana’s investment advisory business including, but not limited to, the performance of our portfolio strategies.  

For additional information regarding our services, including performance disclosures and award methodology, please visit https://thecabanagroup.com/disclaimers/.