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One Horse Can’t Pull the Weight of the World Forever: Market Commentary from Cabana’s CEO – June 28, 2024 

2 weeks ago

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We are seeing some rotation out of tech, which I commented on last week. To me, this is necessary and gives us a chance for the market to broaden and other sectors to catch up. Simply put, one horse (no matter how big) cannot pull the weight of the world forever. 

On the economic front, weekly jobless claims came in around expectations with 233k new filings. Continuing claims, however, are at the highest level since late 2021. This evidences some more softening in the labor market and supports the rate cut hopes for September. 

We get the all-important PCE inflation report Friday morning with analysts calling for a 0.1% month-over-month increase and a 2.6% increase year-over-year (see below for an update, as this commentary was written ahead of Friday’s PCE report). If the numbers come in as expected or cooler, look for stocks and bonds to rally. A hotter print is likely to cause a fragile stock market to break lower and bond yields to rise.  

Growth is slowing, unemployment is rising, and the AI fueled tech rally has made the market cap indices look expensive. I think we need some lower interest rates to move higher and that is only going to happen in one of two scenarios. Inflation cools before something breaks, or something breaks. Nothing is broken yet, so the first option remains on the table. After Friday, we should move a step closer to one or the other. 

*The PCE number for May was better than forecast at a 0% rise month over month and 2.6% year over year.

At Cabana, we remain bullish, but CARA has signaled a deterioration of conditions since the beginning of June. 

Key terms:  

  • Personal consumption expenditures (PCE), also known as consumer spending, is a measure of the spending on goods and services by people of the United States. 
  • CARA is Cabana’s Cyclical Asset Reallocation Algorithm.  
Disclaimers

January 17, 2024

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