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Stocks Have Started Falling on the Back of Wednesday’s Fed Statement: Market Commentary from Cabana’s CEO – September 22, 2023  

1 year ago

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Last week we talked about things being awfully quiet. Well, they aren’t now. Bond yields have exploded up through resistance at 4.3% on the all-important 10-Year Treasury bond. As of this writing midday Thursday, the yield is closing in on 4.5% and we are at levels not seen since 2007. Do you remember what happened then? The great recession followed in 2008 and 2009. I am not saying that is going to happen again, but consumers and businesses can only take so much pain. I am worried we are crossing that threshold. There is a ton of debt out there that is getting more and more expensive all the time. I’ve mentioned watching yields for the past few weeks and specifically looking for a break above that 4.3% level. We just got it on the back of the Federal Reserve’s statement Wednesday and stocks have started falling. The small cap index (IWM) and our benchmark equal weight S&P 500 (RSP) have now fallen below their 200-day moving averages. These are leading indicators in my view and portend a similar fate in the market cap weight tech index (QQQ) as well as the market cap weighted S&P 500 (SPY).  

The week isn’t over, and we could get a recovery quickly but as I see it a weekly close at these levels is cause for concern that lower prices in stocks and bonds are coming. The bond complex is now underwater for 2023 after sustaining losses in 2021 and losses (huge losses) in 2022. I read that this has never happened before in history. That is how unusual this economy and market are. Speaking of unusual, on Monday CARA (Cabana’s Cyclical Asset Reallocation Algorithm) completed a retracement from our Transitional Bullish Scene all the way back to Bearish in just over a month. The same thing happened in February and March. I said then that we had never seen that happen going back almost 20 years. It’s now happened twice back-to-back. That is how difficult this current situation is. 

We are in our Bearish Scene and invested entirely in short duration Treasuries across our Target Drawdown and Target Leading Sector models. Our new Target Beta models are also in our Bearish Scene and allocated consistent with their Target Beta optimization. 

We will continue to grind through and place a premium on preservation of capital. The good news is our Safety Valve positions are paying north of 5% (SEC yield) and should have very little exposure to this mess going on around us.  

RSP as of September 21, 2023 via Stockcharts.com:

IWM as of September 21, 2023 via Stockcharts.com:

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.  

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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.  

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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