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It was a Very Volatile Week for Both Stocks and Bonds: Market Commentary from Cabana’s CEO – August 25, 2023 

1 year ago

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Well, we are at the end of what has been a volatile week for both stocks and bonds. All the major stock indices failed to hold support at their respective 50-day moving average and despite a blowout earnings report from Nvidia Wednesday, selling resumed in mass as each index attempted to reclaim that important technical level. Moreover, the Nasdaq (QQQ), and S&P 500 (SPY) both experienced bearish engulfing candlestick patterns, whereby stocks open higher following an uptrend and then reverse and close lower than the previous day’s low. A lot of technicians watch for this pattern and trade (sell short) off it. The belief is that it is a reliable indicator of more downside to come. Taken with the failure to reclaim the 50-day moving average as well as the move up in interest rates, the odds of more selling seem pretty strong to me. I have included charts of each index, as well as the equal weight S&P 500 (RSP) below. If Nvidia could not pull us out of the ditch on Wednesday, I am not sure what can beyond some really dovish comments by Chairman Powell at the Jackson Hole annual retreat, which we did not get today. His comments came in as expected – not overly hawkish or dovish. Don’t forget Nvidia has been the primary driver of this bull run we have seen since spring. It was them and a few others who advanced hope that the AI (artificial intelligence) boom would carry us forward much like the iPhone did fifteen years ago. Those mega caps literally put the major stock indices on their back and lifted them higher. That may not be enough anymore.  

Mortgage rates are now at highs last seen in 2001 and credit card debt has reached more than 1 trillion dollars. All this debt and need to re-finance at exponentially higher rates has got to come home to roost at some point. The prospect of rates continuing higher make it very difficult for me to see the consumer being able to keep on spending. The next few weeks, including the next fed meeting, are very important in my view to the viability of a new bull market. I saw an interview earlier this week on CNBC (I know I shouldn’t watch it) and the guest was discussing market breadth and the history of bear markets. He said quite frankly this current market is either the weakest beginning to a new bull market in history or the most epic bear market rally in history. I agree. It is one or the other and I think we are going to know soon enough.  

At Cabana, we are currently in our Safety Valve allocation made up of short-term treasuries and taking advantage of the yields we are now getting for very short-term bond duration. This is a bright silver lining around an otherwise grey cloud.  

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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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.  

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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