Go Back

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

9 months ago

  • Share this:

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:  

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.  

“CARA” is Cabana’s Cyclical Asset Reallocation Algorithm. Scenes assigned as per the judgment of The Cabana Group. Scene names and number of scenes have changed over time in an effort to obtain efficiencies and provide clarity of investment objective. 

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 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.  

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.

All recommendations made in the prior 12 months are available upon request. Cabana’s allocation history is available here. For additional information regarding our services, including performance disclosures and award methodology, please visit https://thecabanagroup.com/disclaimers/. 

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