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Major Stock Indices Pull Themselves out of Last Week’s Ditch Ahead of Labor Day Weekend: Market Commentary from Cabana’s CEO – September 2, 2023 

1 year ago

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The major stock indices appear to have pulled themselves out of the “ditch” described last week. We saw all big three reclaim their respective 50-day simple moving averages. The rebound came on the back of a plethora of economic reports this week, including the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures Index. We also got the Job openings (JOLTS) report as well a jobless claim Friday morning. In sum, everything came in about as expected or even a little weaker. In the current environment, weaker is good because it means the Fed may stop raising interest rates. In my view, it is all about interest rates and whether they will abate before the economy hits a brick wall. To date, the economy is still grinding forward with no clear signs of a recession. The consumer just keeps on spending. Eventually, they may stop as financing costs move ever higher. For the vast majority of American’s monthly payments on cars, houses and other big-ticket items are continually going up. If the consumer backs away from the table, we will have a recession and stocks will reflect that. So, the balancing act plays on.  

Bond yields hit highs last seen a year ago during the most recent August stock selloff. They pulled back this week in the face of the “benign” economic data and this helped propel stocks upward. It looks like the market can handle 4.3% on the 10-Year Treasury but I worry that will not be the case if it moves through that line in the sand. Yesterday, bond yields moved higher again, and stocks stalled. The bond market is pricing in a near certainty of a September pause by the Fed so I am not sure what the cause of the jump in yields is, but it needs to be watched closely. 

Earnings continue to beat estimates and the technicals have stabilized. That is the good news and suggests higher prices. The bad news is that we are in a seasonally weak period for stocks and there remain many potential pitfalls, namely the ability of all of us to keep on spending when it is costing more and more. At Cabana, we remain in our Cautiously Bullish Scene with the Safety Valve engaged.  

I hope everyone has a great long holiday weekend and stays safe and healthy! 

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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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