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The Month of November was a Big Win for the Stock Market… Let’s See if it Continues: Market Commentary from Cabana’s CEO – December 4, 2023 

5 months ago

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The stock market finished off a big month on Thursday having recouped all of the losses seen since the end of July. As stated in our last commentary, this has coincided with falling interest rates and the hope that the economy is cooling (but not too much), and the Federal Reserve’s next move will be to cut rather than raise rates.  

Thursday morning, we got some important and relatively good news in the October inflation, consumer spending and unemployment numbers. This data supports the idea that inflation is continuing to come down toward the 2% year-over-year target and that the job market is loosening up (Source: WSJ). All these factors are related and bad news on jobs and consumer spending turns out to be good news for stock and bond prices. As I see it, this will be the case until the bad news becomes really bad news (a recession), at which time stocks will drop and bonds will act like bonds again and cushion the blow as our Central Bank begins to cut rates. How long this takes to play out is anybody’s guess but the bond market is pricing in a rate cut in the middle of 2024. 

We are seeing some slight rotation out of the “Magnificent Seven” mega cap stocks and into other sectors of the market. These gigantic tech companies now make up 30% of the weighting of the S&P 500 and are the reason for the vast majority of gains seen this year in the market cap weighted indexes that we see every day on TV and read about wherever it is we get our news. I have commented on this many times this year and again will point out that this phenomenon is deceiving. Seven stocks in the S&P 500 have crushed it this year (after being crushed themselves last year) while the other 493 have mostly floundered. In my opinion, market breadth is healthy and market concentration is not. The subtle changes and outperformance by small and mid-cap stocks we have seen over the past week is encouraging and I would like to see it continue into the year’s end.  

We have seen this glimmer of light before during the summer, only to see it fade. If we are at the end of the rate hiking campaign, which seems likely, it would seem we have a better shot of this rally continuing and some much-needed catchup by the rest of the market. 

At Cabana, we are now in our Transitional Bearish (improving) scene and have added equity and duration exposure. 

Key terms: The “Magnificent 7” stocks are the seven largest US-listed companies, which are tech behemoths Apple, Microsoft, Google parent Alphabet, Amazon, Meta Platforms, Nvidia, and Tesla. 

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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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