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Is Good News Also Bad News?: Market Commentary from Cabana’s CEO – August 18, 2023 

1 year ago

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The stock market continues to pull back from its recent highs made at the end of July. We expected a pullback to the 50-day moving average (S&P 500) and that has happened. This is a typical first line of support where we would see prices begin to stabilize. That didn’t happen and we have now ended up below it for three consecutive days. Absent a big rally today (Friday), we will have an end of week close below that important technical level for the first time since March. All this suggests we may have some more selling in front of us. As I mentioned in a previous commentary, the next area to look for is between 4200 and 4300 on the S&P 500. Below that is the 200-day moving average at 4100. That would be the last line in the sand and be cause for a re-think of whether we are really in the beginning of a new bull cycle. There is always some “reason” for corrections and this one is no different. I think the reason is interest rates continue to march higher in response to the strength we are seeing in the U.S. economy. Good news is bad news. And we are seeing good news roll in at every turn. Strong consumer spending, record low unemployment and upward revisions to GDP! All really good news. So why the fall in markets? Because all this means the Fed may keep on hiking until they break something. Crazy as all this seems it’s the way things work right now. Our base case remains bullish through year end but given the jump in interest rates this week coupled with a clear violation of the 50-day moving average, I am less assured. 
 

At Cabana, we are now in our Cautiously Bullish Scene and our Safety Valve has again triggered. As a result of the Safety Valve trigger, we have reallocated to ultra short-term treasuries as this latest squall plays out.  

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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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.  

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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