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The Recent Bounce in Stocks has Faded: Market Commentary from Cabana’s CEO – October 26, 2023 

6 months ago

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The bounce we saw in stocks (albeit brief) has now faded and we are again testing important support at the 200-day moving average around 420 on the market cap weighted S&P 500 (SPY). The same can be said of the high-flying Nasdaq (QQQ). I have included charts of those indices below. As long as these levels hold, I believe we have a fighting chance to go higher but just about everything else has already broken down. This includes small caps (IWM), mid-caps (MDY) and the equal weight S&P 500 (RSP). I have included those charts as well. Even more concerning is that we are for the first time this year seeing the “Magnificent 7” begin to underperform and fall. To me, this is a big deal because these stocks like Tesla, Nvidia, Meta and Apple have quite literally carried the broad market all year. If they fall, I think we are going to see lower, perhaps much lower, prices for stocks.  

Bond yields continue to push higher. The 10-Year Treasury bumped right up against 5% last week and the 30-year mortgage crossed 8%. It is no coincidence that bond yields are moving up as stocks fall.  

Finally, we are well into earnings season and companies are getting punished even when they are beating estimates. This could be considered another negative among the several I have pointed out above. We have seasonality in our favor, but signs are pointing toward the bears. Oh yeah, there is also this new crisis in the Middle East and the ongoing war in Ukraine. For good measure, let’s not forget the current inability of our government to function properly.  

At Cabana, we are in our Bearish Scenes across all our portfolios. Our Target Drawdown and Target Income Portfolios are allocated exclusively to short duration treasuries (in Safety Valve). Our Target Beta Portfolios are allocated pursuant to their respective targets (in a Bearish Scene).   

Key terms to know: The ‘Magnificent Seven’ is a term used to describe the seven largest stocks in the S&P 500 index. These stocks are collectively responsible for more than 25% of the entire index.  

SPY via StockCharts.com (as of October 25, 2023):

QQQ via StockCharts.com (as of October 25, 2023): 

RSP via StockCharts.com (as of October 25, 2023): 

MDY via StockCharts.com (as of October 25, 2023): 

IWM via StockCharts.com (as of October 25, 2023):  

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.  

“CARA” is Cabana’s Cyclical Asset Reallocation Algorithm. Scenes 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. 

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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All recommendations made in the prior 12 months are available upon request. Cabana’s allocation history is available here. For additional information regarding our services, including performance disclosures and award methodology, please visit https://thecabanagroup.com/disclaimers/. 

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