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.
U.S. and international equity markets closed out January up more than 5% for the month. The rebound from the December 24th low is now close to 10%. Sharp rallies from oversold conditions are common. In fact, they are a hallmark of bear markets. In the fourth quarter of 2018, U.S. markets dropped right to the bear market threshold of 20%, while international markets crossed that line in the sand earlier in the year. We have discussed ad nauseum the difficulties faced by investors of all types last year. Suffice to say, no major asset classes finished in the black (other than cash). This circumstance is unprecedented and, in my opinion, suggests an overall repricing of assets in response to rising interest rates for the first time in more than a decade. A lot of money left bonds and equities during 2018 and landed in the U.S. dollar. This pressured international equities, commodities and domestic companies with international distribution.
So, then what happened? The rest of the world pulled the U.S. down. The crack began in early October and the bottom fell out in December. There were similar pullbacks during 2013 and 2015/2016. Those turned out to be no more than steep corrections in the continuing bull market. Those were also in response to the threat of rising interest rates in the face of a still weak economy. The potential difference here is that in 2018 we actually saw rising rates, and they rose rapidly. Whether this makes a difference remains to be seen.
Markets are now attempting to reclaim the all-important 200-day moving average. This technical area will dictate whether markets can resume the bull market and reach new highs, or a bear market has begun. Many institutional investors (with large amounts of assets) have investment policies, which dictate that they must be invested in equities when markets are above the 200-day moving average. This fact alone can propel markets higher as these investors are forced to redeploy cash into stocks. Moreover, all the money that has been sitting on the sideline since the 2018 crash, will return to equities in an attempt to not be left behind. The 200-day moving average may be just that important. We will have an answer soon.
Download a PDF of this week’s market commentary at the following link: Cabana Weekly Market Commentary February 4 2019
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/.
Cabana did not pay a fee to participate in the ranking and survey and is not affiliated with Financial Advisor Magazine. RIAs were ranked based on percentage growth in year-end 2017 AUM over year-end 2016 AUM with a minimum AUM of $250 million, assets per client, and growth in percentage assets per client. Visit www.fa-mag.com information regarding the ranking.
