Stocks Move Lower in February, Interest Rates Rise and Caution Remains at the Forefront of Investors’ Minds: Market Commentary from Cabana’s CEO – March 3, 2023

1 year ago

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Stocks moved lower in February as interest rates rose. This is a pattern that has been in place for over a year now – stocks fall when rates rise and vice versa. Bond yields peaked in October, leading to a rally in stocks that continued (albeit rocky) through the end of January. Since then, yields have jumped from 3.39% to 4.06% on the 10-year treasury. The 2-year treasury moved all the way back up to 4.89% from 4.09%. These are big moves over a relatively short period of time and reflect the reality that inflation continues to be a problem. This of course also means that future rate hikes by the Federal Reserve are likely and may be more aggressive than expected just a few weeks ago. None of this is good for stocks and resulted in the S&P 500 falling more than 5% in February from its high. For reference, the Dow Jones gave up all its gains and turned negative for the year. While the Dow led the recent rally on the way up, it now appears to be leading on the way down. Last week, we touched on the fact that the S&P 500 had failed to hold its breakout from resistance in late January and fallen back below previous support and the 50-day moving average.  

I see all that I have listed above as negatives that increase the odds of lower prices going forward. We need to see 3900 (SPX) and the 200-day moving average hold in a big way. We saw that level survive two tests over the past few days and as of this writing (Friday, March 3, 2023), the S&P 500 has bounced from oversold conditions and reclaimed both the 4000 level and its’ 50-day moving average. This is bit of good news and comes as the 10-year bond yield pulled back below 4%. We have a lot of economic data on deck over the next two weeks and let us hope it is disinflationary! With bond yields marching higher, it is hard for me to imagine that stocks can make much meaningful progress. Simply avoiding a retest of lows at 3500 would seem to be a win in that environment. Caution continues to be at the forefront of a lot of investors’ minds – and in my opinion, for good reason. I read this week that hedging has reached the highest level since March 2020. That in and of itself is saying something. Of course, we do not claim to know the future direction of things any better than anyone else and are prepared to add stock exposure if things turn up and the skies clear.  

At Cabana, CARA has signaled a return to bearish conditions, and we are in our Safety Valve Level 2 positions as portfolios are outside of their “target drawdown”. 


January 17, 2024

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