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. 


January 17, 2024

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