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Don’t Let Rising Rates Get the Best of You: Market Commentary from Cabana’s CEO – March 22, 2021

4 years ago

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We spent much of last week reviewing the ongoing rise in interest rates, with a particular focus on how it may impact other asset classes. Our weekly commentary also suggested some possibilities on the continued advance going forward. On Friday, we conducted our monthly webinar for our advisor partners and provided data that set out the technical aspects of this meteoric snap back in rates since the end of August. The move just since the beginning of this year borders on historic. It seems that we have essentially seen a bounce straight back to where we were before Covid-19 took over the world. To us, this makes a lot of sense. It is almost like we pushed the reset button on investments, much like we are doing in our lives. We have commented several times over the years that the markets are simply a reflection of ourselves. It is one of the things we love about investing and one of the reasons we believe Warren Buffet is always so optimistic about future market prices. After all, humans always find a way forward. It is in our DNA!

We would like to reiterate our belief that the rise in rates is necessary for financial markets to move forward. In our view, we need higher rates if the world is going to grow. While rapid moves up in rates put pressure on bonds and other interest rate sensitive assets (at least temporarily), it is the rise in rates that can create the safety found in those assets when things turn south, and rates begin to fall. We would argue that the more rates rise, the safer those assets become in the event of a future recession. The problem is simply that people are impatient and have a strong temptation to chase the hot trade. Investors seem to have a bad habit of forgetting risk and letting FOMO (fear of missing out) take over. This psychological phenomenon is a foundation of the field of behavioral finance. It is also a principal factor in most investors failing over time. Suffice to say it is usually a good idea to understand your risk tolerance and invest accordingly. A person’s risk tolerance (suitability) doesn’t change just because the market does, and it always does.

We expect rates to moderate and perhaps even pull back over the next few weeks before moving higher in response to strong demand side growth in the domestic and international economies.

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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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.  

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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. 

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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