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Last Week Was the First Down Week in the Past Six – What Could it Mean?: Market Commentary from Cabana’s CEO – February 21, 2023 

2 months ago

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The past week we have seen two separate inflation measures (CPI and PPI) come in above expectations. This has increased upward pressure on interest rates while reducing chances the Federal Reserve (the “Fed”) will cut rates anytime soon. The message from our Central Bank has been clear that rate cutting will not begin until it is “confident” that inflation is headed back to the 2% target. This January data doesn’t help things, although it does appear we continue to be headed in the right direction.  

All this interest rate volatility has caused bonds, dividend payers, real estate and other “sensitive” assets to pull back from the recent highs seen at the end of 2023. So far this year, technology has kept on keeping on, and has helped the market cap weighted indices stay near their highs. We did, however, just finish a down week across the board (even in Big Tech) for the first time in six weeks. That trend is continuing through today. We will get more technology information when Nvidia reports earnings after hours today. It is also worth pointing out that the VIX (volatility index) has been steadily moving higher since the new year began. It is not flashing signs of imminent trouble, but we should keep an eye on it. The VIX crossed 15 this week and 20 has been an important tipping point over the past two years (Source: CNBC as of 2/19/2024).  

It is believed that this time of year is historically a seasonally favorable environment for stocks, and it seems to me that the next move for interest rates is down. These two factors suggest that any selling pressure will be met by buyers stepping up. This will likely keep a floor in place if something unforeseen doesn’t show up. What could that be? A major international conflict that impacts supply chains and commodities like oil and gas? Hmm. That actually doesn’t seem so unforeseen right now. To me, that possibility is starting to creep into the equation and may be part of the move up in interest rates as well as volatility. I don’t hear anybody shouting about these things on CNBC yet, but don’t be surprised if they start. 

For now, I’ll be happy to tread some water here and wait on some potentially favorable inflation news in March. 

At Cabana, we remain in our Transitional Bullish scene and are allocated across portfolios accordingly. 

Key terms:  

  • The Consumer Price Index (CPI) measures the overall change in consumer prices based on a representative basket of goods and services over time. The CPI is the most widely used measure of inflation, closely followed by policymakers, financial markets, businesses, and consumers. (Source: Investopedia.com)  
  • The Producer Price Index (PPI) measures the average change over time in the prices domestic producers receive for their output. It is a measure of inflation at the wholesale level that is compiled from thousands of indexes measuring producer prices by industry and product category. (Source: Investopedia.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.  

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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