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Stocks Have Rallied, but Fundamentals Remain Rocky: Market Commentary from Cabana’s CEO – November 20, 2023  

6 months ago

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Stocks have continued the rally that began two weeks ago and as of Friday are near the July highs, having erased nearly all the losses seen during the August through October swoon. Part of the recent rally could be due to short covering and oversold conditions existing at the end of October. The rest can be attributed to a belief that the Federal Reserve is finished hiking interest rates. This is supported by cooling inflation and a pullback in interest rates. Stocks struggle when interest rates are rising, and we have recently seen rates at multi-decade highs. The drop in rates from 5% to 4.5% (10-year Treasury note) is seen as a big relief and investors jumped on stocks.  

Unfortunately, this does not change the fundamentals going forward for the economy. Our government debt now exceeds GDP and the interest on that debt is likely unsustainable. The consumer continues to spend money that they don’t have as reflected by credit card debt approaching $1.5 trillion at the same time interest on that debt is also at generational highs. Bankruptcies are beginning to pick up and there continues to be signs that spending is hitting a wall. In my opinion, far too many people have levered a lifestyle that they cannot afford. Our government is no better, so I don’t know why we should expect our citizenry to be any more responsible. All this smoke and mirrors works in an ultra-low interest rate environment, but with a potential secular change in interest rates upon us I just don’t see it playing out as well. At some point reality must kick in. When? I don’t know. We have been living in a fictitious economy since at least 2008 with dollars being printed and shoved into the economy while interest rates were driven ever lower, all in an effort to stimulate spending and keep asset prices up. Many people a lot smarter than I am, have predicted an economic catastrophe over the past fifteen years, that never seems to come to pass. So, I certainly do not discount our collective ability to kick the can down the road.  

At Cabana, we do not invest based upon what “should happen” or even based on what we think is going to happen. We follow our system and as of last week, we have released our Safety Valve positions and added bond and equity exposure, albeit limited. We are still in our Bearish Scene but are prepared to reallocate to our transitional scene should conditions warrant. 

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.  

“CARA” is Cabana’s Cyclical Asset Reallocation Algorithm. Scenes assigned as per the judgment of The Cabana Group. Scene names and number of scenes have changed over time in an effort to obtain efficiencies and provide clarity of investment objective. 

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 2A or Form CRS. 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.  

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All recommendations made in the prior 12 months are available upon request. Cabana’s allocation history is available here. For additional information regarding our services, including performance disclosures and award methodology, please visit https://thecabanagroup.com/disclaimers/. 

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