Trade War Resumes: Market Commentary from Cabana’s CEO – May 13, 2019

5 years ago

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Below is a snapshot of last week’s market performance and what to watch in the weeks ahead from Chadd Mason, Cabana CEO and co-founder.

What a difference a week can make! The trade war with China is back on… big time. President Trump slapped an additional 15% tariff on more than $200 billion worth of Chinese goods imported into the United States. This follows a levy of 10% implemented last year, bringing the total to 25% on a wide variety of goods. Further, the administration has indicated that the 25% tariff will soon be applied to all imports from China. This will apply to another several hundred billion dollars worth of goods. China has now responded in kind and will raise the same 25% tariff on U.S. goods. The focus will be on U.S agricultural products. Whether China is targeting Trump’s voter base, or this just reflects the nature of our products being exported to China is debatable. What is not debatable is the fact that these tariffs will cause prices to rise on many things that everyday Americans buy and use.

Economists around the world spent the weekend trying to assess just how much these events will hurt the economy here and across the globe. There are a number of variables, not the least of which is the political underpinnings of this dispute. The consensus according to CNBC is that we will lose at least 70 basis points off our GDP in the U.S., and the world GDP may drop to zero for 2019. Additionally, farmers will lose a huge customer in China. It appears that some sort of subsidy package will likely be necessary from Congress to keep them afloat. How this will impact China is anyone’s guess. China is not a market economy and probably has more tools to deal with the collateral damage over the short term than we do. President Trump believes that over the longer term, the U.S. will come out ahead and we will be all the stronger economically. For the sake of his re-election, he better be right. If our nation’s farmers and middle class begin to struggle, he may have some serious problems. 

U.S. equity markets have all dropped at least 5% over the past week. The tech-heavy Nasdaq has dropped 6.5%. For reference, China is down 11% over the same period. Furthermore, the selling has been on huge volume, evidencing that institutional money is leaving these risk assets. This is not surprising given the potential impact to the world’s supply chain, coupled with the run up in stocks we have seen both domestically and internationally so far this year. Last week’s events are providing a good reason to take some equity money and move it somewhere else. The big winner so far is U.S. Treasury bonds. The 20-year Treasury bond is up 2.5%. This reflects an assumption that interest rates will have to fall in order to compensate for the headwinds caused by the tariffs and to stave off a recession. This morning, bond markets were pricing in a 50 basis point cut in rates by the Federal Reserve. Last week, we commented on Chairman Powell having stated that the central bank would not be cutting rates going forward. He may have to eat those words given what we are seeing now.

A PDF of this week’s market commentary is available at the following link:

Disclaimers:
 

This material is prepared by Cabana, LLC(d/b/a “Cabana Asset Management” & “Cabana Retirement Solutions”) 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. 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.

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.

Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV, Part 2. A copy of which is available upon request or online at https://www.adviserinfo.sec.gov/.

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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 CabanaThe 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.  

Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX. The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV Part 2A or Form CRS. A copy of which is available upon request or online at www.adviserinfo.sec.gov/. 

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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