Major Indices are at All-Time Highs While Equal-Weight Indices Lag: Market Commentary from Cabana’s CEO – July 12, 2021

3 years ago

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Major U.S. stock indices kicked off the week in positive territory and are at all-time highs. While these are at the forefront of what most people view as the “stock market,” they are market cap-weighted indices and only reflect the performance of a small sample of large companies. It is because of this that I am always interested in how everything else is performing.

This can be evaluated by looking at the S&P 500 equal-weight index (RSP) or the Russell 2000 small-cap index (IWM), to name a few of the indices comprised of a larger sample of companies’ performance. Unfortunately, these indices don’t look nearly as positive. The RSP index has been flat and even slightly down for several weeks now and the Russell 2000 is well off its highs established more than a month ago. While these facts do not change our overall bullish sentiment, they do pose some questions as to just how good things really are going forward.

This, along with the recent pullback in bond yields suggests the possibility that a long overdue correction is in order. Whether this is all just noise due to the Covid delta variant spreading rapidly among unvaccinated populations, or just some technical rest following a big and mostly unabated runup in stocks, remains to be seen. I for one am starting to feel a bit cautious going into a traditionally volatile and weak season for investing.

We talked last week about how markets can change rapidly from good to bad and vice versa. Let’s all keep that in mind over the next few weeks. We will be watching to see if the “rest of the market” can regain its upward momentum and catch up or if it goes the other way around and the market cap weighted S&P 500, Dow and Nasdaq fall back.

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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 CabanaThe 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