Money Rotation Continues to be Bullish: Market Commentary from Cabana’s CEO – November 11, 2019

12 months ago

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This past week we saw major U.S. indices tread water at their all-time highs. Underneath the hood, money is rotating from low beta assets such as bonds, real estate, utilities and dividend payers, into cyclical assets like technology, transportation, energy and industrials. Financials continue to benefit from rising long-term interest rates and a steepening of the yield curve.

While markets are taking a well-deserved rest after a particularly strong October, the money rotation taking place continues to be bullish. On Wednesday of last week, we posted a chart to our blog with  performance of the various stock sectors over the past thirty days. It is worth reviewing to see this rotation in terms of real money. You can view that post here.

We are watching small caps, transportation and energy for signs of strength going forward. These indices continue to see buyers step in at any pull back and today was no exception. Investors appear to be forecasting renewed growth going forward after a slowdown here in the U.S. during 2019. As always, markets are forward looking, and that fact best explains the strong returns we have had thus far this year in the face of deteriorating economic data. It also explains the weak returns in 2018. The market in that case was looking to 2019.

I am also pleased to report that outside the U.S. we are seeing some relative strength, after two years of abysmal performance. The All Country World Index (ACWX) is now at an all-time high and the Emerging Market Index (EEM) has held its own during the October rally. Some of this is due to the possibility that trade issues with China are being resolved and some of it is likely due to improving cyclical economic conditions around the world. Regardless of the reason, it is good to see U.S. markets getting some help.

All of this makes me hopeful that we may see more gains in all-asset portfolios before year end. 


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