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We Are Still No Closer to Clarity of When or How This Bear Market Will End: Market Commentary from Cabana’s CEO – February 22, 2023

2 years ago

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Over the last ten days we have seen two hot inflation data points come in. The January CPI number came in above estimates and this was followed by a higher-than-expected PPI number at the end of last week. All of this comes on the back of exceptionally strong labor market reports. It appears investors are taking this to mean the Federal Reserve is going to have to raise rates higher than many believed. This suggests higher bond yields and lower stock (and bond) prices.  

To me, the last two weeks feel a lot like the spring of 2022. While no technical damage has been done to the benchmark S&P 500 and its price remains above its 50- and 200-day moving average, it is testing support at 4000 as of this writing (Tuesday, February 21). At the same time, the 10-year treasury is closing in on 4% again. If these levels don’t hold it would seem we are in for another leg down in stocks. The October low on the S&P 500 was 3500 and that remains some distance away but a re-test of 3800 certainly seems possible in the near term.  

We are now fifteen months into this bear market in both stocks and bonds and still seem no closer to any clarity of when and how it will end. As I pointed out last week, so-called experts are all over the map in their predictions. That in itself is not so unusual but what is unusual is the magnitude of the range of predictions. One person says a recession is certain and that the stock market needs to fall another 30%, while another says the bear market is over and stocks will rise 20% by year’s end. The reality is no one knows, and the truth could be somewhere in the middle. I do know the yield curve is the most inverted it has been in decades (short term rates are higher than long term rates). That fact alone suggests economic weakness going forward. If inflation doesn’t subside, rates will continue to rise, and that “weakness” will be more pronounced. 

At Cabana, we are presently in our Transitional Bullish Scene but are prepared to trigger our Safety Valve Scene in response to continued deteriorating conditions. 

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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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