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

3 weeks 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. 

Disclaimers

February 23, 2021

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 CabanaThe 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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The COVID-19 health epidemic has had substantial global economic impact on financial markets. As of March of 2020, restrictions to travel and business spanning the economy for activities not deemed essential have been imposed throughout the United States. These restrictions have caused unprecedented volatility and uncertainty in capital markets and have negatively impacted the economy. It is unknown how severe the impact to the economy and capital markets will be if the epidemic persists for an extended period of time. The epidemic may have a material adverse impact on Cabana’s investment advisory business including, but not limited to, the performance of our portfolio strategies.  

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