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Three Good Things Happened in the Market Last Week: Market Commentary from Cabana’s CEO – June 7, 2023

11 months ago

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Three good things happened last week. First, our government avoided a catastrophic debt default and passed a resolution to raise the debt ceiling. Second, we got a really solid jobs report. Hiring continued to grow unabated despite all types of threats to the economy and, importantly, wage growth slowed at the same time. This was viewed as a “goldilocks” report – not too hot and not too cold. The idea being that the economy can maybe avoid a recession and the Federal Reserve has something to hang its hat on in the form of slowing wage growth, which justifies pausing its rate hike campaign. Both of these events led to a big move up in the stock market on Friday and brings me to the third good thing. The “rest of the market” finally had as good or better of a day as the few mega cap technology stocks that have carried the stock indices since the beginning of the year. I have pointed out many times in recent weeks that most sectors of the stock market are flat or even negative for the year while the Nasdaq and S&P 500 were up 20% and 10% respectively. This discrepancy between a few gigantic stocks and everybody else is worrisome and is referred to as a lack of “market breadth”. For reference, you can see some of the visual examples we have provided in the last few weeks of commentaries (all can be found here). Compare that to what happened last week, which I am providing in a few visuals below. For the first time in a long time, we saw some positive “market breadth”. It is a good sign to me when the equal weight S&P 500 (RSP) is outperforming the market cap weighted version (SPY). 

One day does not make a trend, but this one day felt like something more than just coincidence. Let’s see if there will be some follow through this week of more of the same. That, in conjunction with a weekly close by the S&P 500 above 4200, would be evidence of this being more than another extended bear market rally. 

At Cabana, we remain allocated in our bearish positions but are preparing to add equity exposure upon CARA’s signal. 

The following from Stockcharts.com shows the equal weight S&P 500’s underperformance this year so far (prior to last week).  

The following from Stockcharts.com shows the equal weight S&P 500 outperforming beginning last week.

The following from Stockcharts.com shows the change in sector performance beginning last week.

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