The Market Correction Continues: Market Commentary from Cabana’s CEO – April 19, 2024

6 months ago

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The market correction continues in the face of the reality that rate cuts are likely not on the way anytime soon. We have seen three straight months of sticky inflation, coupled with a red-hot economy and a very strong job market. It is obvious that the tail risk right now is higher inflation, not a pending recession. This analysis means higher rates for longer.  

Investors don’t like this for two reasons. First, it means stocks are less attractive compared to “risk-free” assets like short term treasuries (earning well north of 5%), and secondly, it means there is an ever-increasing risk that the restrictive rates will ultimately cause a rapid collapse in economic activity (i.e. recession).  

All in all, these are good reasons to take some money off the table after a great six-month run from October of last year through March of this year. The major indices are all now below their respective 50-day moving average and look to head lower absent some helpful inflation data. Normal market corrections involve pullbacks of up to 10%, and we are already halfway there in just two weeks. I suspect this will ultimately be a normal correction, but we may need to go lower before this fully plays out. I don’t think we will return to a bear market unless the Fed needs to raise rates again and they are aware of the market damage that could cause. The next catalyst is the PCE report, which comes out next Friday. A good report could easily turn us back around. Another hot number equals higher yields and will likely prolong the grind lower in both stocks and bonds. 

At Cabana, we are currently preparing to reallocate across our portfolios.  

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January 17, 2024

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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