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It Was a Big Week on the Inflation Front: Market Commentary from Cabana’s CEO – February 14, 2025

7 days ago

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We had a big week on the inflation front as we got the January CPI numbers on Wednesday and the PPI numbers on Thursday. The CPI is backward looking in that it reflects prices paid by consumers last month, while the PPI is forward looking and reflects what producers paid for raw goods last month and suggests what costs may be passed on to consumers in the form of finished goods in the future. Both reports came in above expectations, which means that inflation pressures were higher than expected. This implies that inflation is not continuing to fall toward the Federal Reserve’s target of 2% and also implies that the Fed is not going to be cutting rates anytime soon.  

These assumptions are both negative for the stock market in general. This ”bad news” is being offset by strong earnings from the companies that have already reported for Q4 2024. Seventy five percent of reporting companies have beaten analyst estimates. Add to this the upheaval caused by reports of massive government layoffs, coupled with the threats of tariffs on all imported goods and we have some real questions going forward (at least in my opinion). We are seeing some of this showing up underneath the hood of the stock market. As I pointed out last week there is some sector rotation going on that feels sustainable. Technology is no longer the only game in town after two years of massive outperformance. I think part of this is a normalization of the economy and part is a trend toward profit taking in big tech and investing in some cyclical and even defensive sectors that haven’t gotten any attention since the pandemic ended. I personally think this is a good thing and evidence of longer-term health in the economy and markets. The concentration we have seen in big tech is just not sustainable. A one-legged stool doesn’t fare well in a storm. 

I am providing three charts for a visual of what is going on – all pulled from StockCharts.com today.  

The first compares the Nasdaq 100 (technology) and Dow Jones (blue chip) since December 21, 2024.  

The second chart shows the same comparison over the past year. As you can see, the Dow is beginning to shine after a long time in the wilderness.  

The third chart shows the performance year-to-date of the individual sectors that make up the S&P 500. The leaders include materials, communications, healthcare, financials and energy. The laggards include consumer discretionary and technology. This is a significant shift and I believe is favorable to investors with all-asset diversified portfolios… like those we manage at Cabana. 

At Cabana, we remain in our Bullish Scene. 

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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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.  

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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. 

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