Markets Close Out May on a Positive Note, Despite Intra-Month Volatility: Market Commentary from Cabana’s CEO – May 28, 2021

2 weeks ago

  • Share this:

Relatively tame inflation data, a pullback in commodities, and continued dovish comments out of the Federal Reserve have all led to a growing feeling among investors that the big jump in inflation may be transitory after all. We have watched the bond market closely for the past two months to see if another leg up in interest rates was imminent. Rates have held steady despite equities moving higher and all sorts of talking heads claiming that raging inflation is on the way. The fact that rates have held within early March levels (and even dropped) is strong evidence that the rapid rise in interest rates associated with the economy reopening was priced in months ago. We have discussed many times over the years that the bond market is one to watch. I believe the big and smart money plays in that pond. Stocks just tag along.

From here, I suspect bond yields will rise gradually as growth gathers steam across the globe. This should continue to relieve pressure on conservative portfolios, which have faced serious headwinds over the past nine months as interest rates took off. Remember, bond and other fixed income prices usually fall when rates rise. This relationship is amplified when rates rise rapidly, which has certainly been the case.

May is ending on a relatively positive note as most April gains remain intact despite some intra-month volatility. First quarter earnings were positive and projected annual earnings growth is now approaching double digits. Those factors and some moderation in interest rates is a recipe for higher stock prices. I also expect the trend in rotation from technology to cyclical sectors to continue. Investors are always looking for value and assets like transportation, industrials, financials, and energy may continue to outperform as the world returns to normalcy.

Lastly, I would like to comment on the cryptocurrency sector. We have received questions about how to invest in that space and whether or not an investor should invest at all. The reality is that today these investments are primarily just trades. This means that an investor is betting that someone will pay more later for the crypto than the investor did today. In my opinion, this is akin to gambling. You might get rich, or you might go bust. This of course is why the price of these investments rises and falls by 30-40% with regularity. It is also why the SEC in the United States is having a hard time approving an ETF of these investments, and why guys like Warren Buffet and Charlie Munger are not fans. On the other hand, digital currency is quickly gaining a foothold as a method of payment in legitimate transactions. Young people who grew up with payment apps, debit cards, and other non-traditional methods of payment are now using Bitcoin and other cryptocurrencies… and they are excited about it. I don’t think it is going away and I think over time it will become part of a diversified portfolio – not as a trade, but as an asset. I believe it is at that point that the door to this investment will open for good.

Disclaimers

February 23, 2021

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.  

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.  

Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX. The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV, Part 2. A copy of which is available upon request or online at www.adviserinfo.sec.gov/. 

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.  

Cabana claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a trademark of the CFA Institute. The CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS Report and/or a firm’s list of composite/pooled fund descriptions please email your request to info@thecabanagroup.com.

The COVID-19 health epidemic has had substantial global economic impact on financial markets. As of March of 2020, restrictions to travel and business spanning the economy for activities not deemed essential have been imposed throughout the United States. These restrictions have caused unprecedented volatility and uncertainty in capital markets and have negatively impacted the economy. It is unknown how severe the impact to the economy and capital markets will be if the epidemic persists for an extended period of time. The epidemic may have a material adverse impact on Cabana’s investment advisory business including, but not limited to, the performance of our portfolio strategies.  

For additional information regarding our services, including performance disclosures and award methodology, please visit https://thecabanagroup.com/disclaimers/.