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Continued Backfilling in Stocks this Week: Market Commentary from Cabana’s CEO – May 31, 2024 

1 month ago

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This week we have seen continued backfilling (selling) by the main stock indices. This is not unexpected after the jump up we saw earlier in the month. The S&P 500 and Nasdaq remain above their respective 50-day moving averages while the Dow has broken down and is now well below it. 

This disparity is due to the outperformance by big tech, which makes up such a huge part of the Nasdaq and S&P 500 market cap weighted indices. Interestingly, yesterday and today we are seeing a reversal of this, and technology is getting the brunt of the selling. It remains to be seen whether this is just a matter of some catchup going on or the beginning of a trend in favor of more defensive sectors.  

I do know that in the past two days we are getting some softer economic data coupled with resilient inflationary pressures. First quarter GDP was revised lower and is well below the growth we saw at the end of last year. We got the Fed preferred inflation gauge this morning (PCE) and it was in line with expectations but still well above the 2% annual target. To me, this means the economy is softening and while inflation is not rising, it isn’t falling much either. In this circumstance, I would expect continued elevated interest rates and slower growth. This logically supports the rotation into defensive sectors like healthcare, utilities, dividend payers and staples. I also like bonds here. So long as rates don’t move higher in response to inflation reigniting, treasuries and bonds should do well as investors look to safe yield in place of growth.  

At Cabana, we remain bullish overall, and I believe we are currently well positioned across our portfolios to benefit from these allocations. 

Key terms:  

  • GDP is the total value of goods and services produced within a country’s borders in a specific time period. It is a measure of an economy’s output, size, and health.  
  • Personal consumption expenditures (PCE), also known as consumer spending, is a measure of the spending on goods and services by people of the United States. 
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.  

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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