Technology is on the Front Lines of Rising Rates: Market Commentary from Cabana’s CEO – March 30, 2021

7 months ago

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Worldwide equity markets remain volatile, with moves up or down more than 1% occurring regularly. Everything is still tied to interest rates. Investors saw some expected moderation in rising rates last week, but this morning we hit a new high in the 10-year Treasury bond. The yield is currently at 1.75% and a test of 2% appears inevitable.

Investors worldwide are continuing to assess what impacts these higher rates will have on earnings growth and access to capital. Companies (and sectors) that rely on borrowed capital are most susceptible. Technology is on the frontlines of this issue. As we have pointed out in the past, investing is a zero-sum game. Where one investment suffers, another one benefits due to the never-ending quest for yield relative to risk. Right now, the technology sector looks like a risky proposition given the extended run up we saw last year coupled with headwinds caused by increased borrowing costs. So, who benefits? Companies and sectors with strong balance sheets and positive cash flow. These are the cyclical blue chips of the world. It appears that energy, industrials, and financials are good bets as growth across domestic and international economies gains traction. Basic materials and commodities are benefactors as well. In fact, it is the expected growth in demand for commodities that causes rates to rise in the first place. The S&P 500 has scratched out a 5% gain over the first quarter despite the volatility we’ve seen. We expect positive returns to continue through the end of the year, but it likely won’t be a straight line up. It rarely is.

It’s our belief that tactical management should outperform the traditional static 60/40 mix of stocks and bonds. At Cabana, we remain in our Bullish Scene and are prepared to reallocate if/when CARA moves closer to a signal. 


February 23, 2021

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