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The S&P 500 Inches Closer to All-Time Highs, Encouraged by Q2 Earnings: Market Commentary from Cabana’s CEO – August 10, 2020

4 years ago

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Major equity indices are positive for the year. The Nasdaq is now at all-time highs on the back of blowout performance from Amazon, Google, Facebook and Netflix. These companies, along with the tech sector in general, have thrived amid social distancing and remote working. Technology is the driver of innovation and will continue to benefit as humans are required to adapt to the new world brought on by the COVID-19 pandemic. Another winner is Walmart, which in its efforts to keep up with Amazon has found itself capable of providing basic necessities to people through a variety of channels. The S&P 500 is within a whisker of its all-time highs reached in February. FactSet Data is reporting that of the companies which have released second quarter earnings, more than 80% have beaten sales and revenue expectations. Some of this is due to outstanding management in navigating this year’s difficult conditions and some is due to analysts having set the bar extremely low. Regardless of the reason, companies are still working and grinding forward.

President Trump unilaterally implemented additional economic relief when it appeared that neither Republicans nor Democrats could reach a consensus. At first glance, he appears to have split the difference in hopes that continued negotiation will occur behind the scenes. Whether you are a Trump fan or not, his action is necessary to prevent a cataclysmic waterfall of defaults and evictions. It remains to be seen if these types of stopgap measures can keep a severe recession or even depression at bay. In my view, we are just buying time until a medical solution is obtained.

One thing appears certain – interest rates are going to remain historically low for a very long time. Real rates (after adjustment for inflation) are deeply negative. This means that you are actually losing money by investing in many bonds, CD’s and money market accounts. That fact alone forces money into equities, preferred shares and other risk assets as investors desperately search for yield. In addition to benefitting stocks, gold has moved above 2000 per ounce. Investors are buying gold because it represents a store of value against a deteriorating U.S. dollar and interest rates are no longer a deterrence. The dollar is now at its lowest level in more than two years. While a strong dollar evidences a strong U.S. economy, a weak dollar benefits our exporting manufacturers, as well as commodity producers. This may not be a bad thing right now. Those sectors can use any help they can get.

Look for a pullback or at least a period of consolidation as the broad markets reach the February highs (3400 on the S&P 500). The ability to break through that level will likely dictate whether we have completed the shortest bear market in history or simply completed the sharpest bear market bounce in history.

A PDF of this commentary is available at the following link:

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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