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The Market Rally is Broadening: Market Commentary from Cabana’s CEO – June 22, 2023

1 year ago

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Stocks are currently digesting the rally that we have seen over the past six weeks. This is especially true for the market cap weighted Nasdaq and S&P 500, whose performance is largely dictated by large mega cap technology stocks. As we (and others) have pointed out many times recently, those few stocks have been the primary driver of market returns this year. As such, they have become overbought and ripe for a correction, which I pointed out last week. The good news is that everything else in the market is catching up and beginning to outperform. I have discussed this positive development in market breadth for the past two weeks and the trend has continued. Simply put, the rally is broadening out and that is good for the prospect of it being sustainable. As an example, the DOW industrials (XLI) hit a new all-time high last week. At the same time, we saw the airline index break out above resistance. Both of these offer support to the idea that the economy remains resilient.  

I think weekly charts matter more than daily charts and do a better job of filtering out the noise of daily trading back and forth. The weekly charts of all the major indices are now positive and trading above their respective 50-week moving averages. I would also point out that they have made a series of “higher lows” over the past few months and are now breaking out to “higher highs”. This constitutes a technical positive trend and is good. I have included performance charts of the equal weight S&P 500 (RSP), the market cap weight S&P 500 (SPY), the Russell 2000 small cap (IWM), the Dow Jones (DIA) and the Nasdaq 100 (QQQ) for reference below. I am using 50- and 200-week simple moving averages for context, and all charts were pulled from stockcharts.com on June 21, 2023.  

At Cabana, we added stock exposure across our portfolios last week and remain hedged with longer dated treasuries and corporate bonds depending on the risk profile of the portfolio. 

We are in our Transitional Bearish (improving) scene. 

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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This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal.  

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Past performance is no guarantee of future results. All investment strategies have different degrees of risk and the corresponding potential for profit or loss. Asset allocation and diversification will not necessarily improve returns and cannot eliminate the risk of investment losses. “Target Drawdown” is merely a descriptive term used to describe the general strategy and objective of the portfolio, it is not a guarantee, nor should it be construed to suggest safety or protection from loss. There is no guarantee that portfolio performance will remain consistent with the targeted drawdown parameter. While risk tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account and there is no guarantee that Cabana’s strategies will be suitable for any investor. Investors and advisors should not simply rely on the name of any portfolio to determine what is suitable. It is the responsibility of investment advisors to determine what is suitable for their clients. Cabana manages assets on multiple custodial platforms. Performance results for specific investors will vary based upon differences in associated costs and asset availability.  

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Commonly used index/benchmark definitions:  

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.  

Morningstar’s Tactical Allocation category includes portfolios that seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. 

The S&P 500 Index is a market-capitalization weighted stock market index of 500 widely held large-cap stocks often used as a proxy for the U.S. stock market.  

The Russell 2000 and 3000 indices are market-capitalization weighted stock market indices that include, respectively, 2000 and 3000 of the most widely-held stocks and are often used as proxies for the U.S. stock market. 

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