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Inflation is Still Hanging Around: Market Commentary from Cabana’s CEO – March 19, 2024 

8 months ago

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We got February inflation data last week in the form of the CPI on Tuesday and PPI on Thursday. Both reports came in above expectations and evidence the fact that inflation is still hanging around and we are still some distance away from the Federal Reserve’s (the “Fed”) stated target of 2%.  

Bonds immediately sold off as interest rates jumped back to resistance around the 4.3% level (10-year Treasury note). We have seen rates creeping back up since the beginning of the year so the latest round of data should come as no surprise. Markets have a way of sniffing things out ahead of time and this case appears to be no different. I have included below a six-month chart on the 10-year Treasury yield for reference.  

Rising rates pressure all types of assets, including stocks and this latest round appears to be taking some steam out of the run-up we have seen since the end of January. Most notably, we are seeing some underperformance in technology, which is long overdue in my opinion. The bigger impact caused by the relatively hot inflation numbers is on the timing of the Fed cutting interest rates. All this move up in stocks and bonds since October of last year has been predicated on the idea that relief was on the way in the form of rate cuts. With inflation stuck where it is and unemployment near historic lows, those rate cuts don’t seem nearly as sure of a thing.  

I personally feel like we are in good shape so long as the Fed doesn’t have to RAISE rates going forward. Despite some volatility, markets seem to be doing just fine with the idea that the next move is a cut, no matter when it comes. A four percent yield on the 10-year Treasury is about the historical average. Unfortunately, we all got used to being spoon fed money over the past 15 years and it is uncomfortable (even painful) waking up.  

This week, the Fed meets, and we will have a lot more to go on after hearing from Chairman Powell on Wednesday. Assuming he indicates cuts are the next move, I expect all asset classes to continue to move in a positive direction. Bonds have the greatest potential for gains as they have been beaten up the most over the past two years.  

At Cabana, we are all-asset managers, and I am looking forward to the sun starting to shine on interest-rate sensitive assets. If the Fed backtracks and suggests there is “more work to do” and additional hikes may be warranted, I expect a significant drop in stocks quickly. Stay tuned. 

We remain in our Transitional Bullish Scene across all our portfolios.  

10-Year Treasury Yield as of March 15, 2024, via StockCharts.com:  

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January 17, 2024

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