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Markets Have Been Busy Grinding to Nowhere in the New Year: Market Commentary from Cabana’s CEO – January 17, 2024 

11 months ago

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The stock market continues to try and digest the outsized gains we saw in November and December. We’ve seen a whole lot of grinding nowhere since the new year began as investors evaluate whether we got ahead of ourselves with the assumption that interest rate cuts are imminent. 

The bond market is driving things as usual in this day and age and the 10-Year Treasury Yield is gyrating around the 4% level after falling all the way to 3.8% during the end of year euphoria (Yahoo Finance as of 1.16.2024). When yields are going up, stocks are going down and vice versa. So, what can break this cycle? Probably nothing for the time being, but if anything can, I think it is earnings. We just kicked off earnings season and we will see if reports can justify the lofty multiples we reached during the year end rally. Earnings drive price and they provide the possibility to move stocks up even if potential Federal Reserve cuts fail to come at the rate expected. FactSet is predicting earnings to grow this year, but whether they can do so at a double-digit pace necessary to justify current prices remains to be seen.  

We haven’t talked about the yield curve in a while, and it is worth looking at today. The curve remains inverted whereby short-term rates are higher than long-term rates (generally not a good sign), but it is de-inverting at a solid pace. Typically, this indicates a recession and that the Federal Reserve is beginning to rapidly reduce the Fed Funds Rate. Here, that does not appear to be the case, but rather it seems that short-term rates are dropping based upon the idea that current conditions are overly restrictive in a non-inflationary environment. The entirety of the curve looks to me to be orderly re-balancing to normal (pre-Covid) conditions. I have included a chart below of the 10-2 Year Yield Curve Spread below. As you can see, we are creeping back to a positive curve. I think this is a good sign coupled with resilience in the overall economy, jobs etc.  

I expected some pullback after the nice bounce in “everything” during the fourth quarter last year, and that is occurring. The next two weeks, as we see earnings roll in, may very well determine whether we get another leg up before the first rate cut.  

At Cabana, we remain in our Transitional Bullish Scene and are allocated accordingly across all portfolios.  

P.S. We have webinars coming up at the end of this month to discuss our portfolio solutions and what we expect over the coming year. Be on the lookout for the invitation and please submit any issues that you want to discuss at these events to our team.  

NOTE: “Scenes” are assigned as per the judgment of The Cabana Group. Scene names and number of scenes have changed over time in an effort to obtain efficiencies and provide clarity of investment objective. 

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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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.  

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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