Market insight and a highlight of Cabana’s year-to-date performance:
Cabana’s seven portfolios range from “Conservative” to “Aggressive” and include an income strategy and an “Accumulator” portfolio. Performance is as of market close on May 7, 2018 and is presented net of maximum advisory fees and commissions.
Cabana Portfolios were mixed for the week, consistent with both equity and bond markets. Energy and commodities are the only assets to have benefited from the rising rates. We currently have these assets to varying degrees in all Cabana Portfolios, but exposure at this point remains limited.
Bond yields hit resistance at 3.04%. This level in the ten-year bond represents highs we have not seen since 2011. As we pointed out last week, the meteoric rise to this level over the past three months is a major contributor to the volatility we have seen in equity markets, as well as the pullback in interest/dividend-paying, safe-haven assets like bonds, real estate and blue chip stocks. Not only does rising interest rates act as a headwind, but so does the corresponding rise in the U.S. dollar. Large multinational corporations are at a competitive disadvantage, trying to compete in foreign markets when we have a relatively strong dollar. I was especially concerned that rates could move through 3.04% and into territory whereby costs might overwhelm corporate earnings. In such a case, a significant selloff (or recession) could be a very real possibility. That has not yet occurred. While future earnings expectations are being moderated by analysts, present earnings have remained exceptional. In addition, economic fundamentals are as strong as they have been in this century. The million-dollar question is whether we have seen the best of it – and are destined to drop off from here. We must remember that there is an economic and technical (or price) top in every bull market before the inevitable downturn. The key will be if earnings growth starts to level off and then fall. This hasn’t happened yet, but all the stars are aligning. To me, this is starting to feel a lot like the eighth or ninth inning. Markets seem to concur as we continue to churn between the 50- and 200-day moving average. The good news is the 200-day has held three times since the February drop. The bad news is that if we break out and rally back to the January highs, it may be the last rally we see for a while. We continue to avoid investing based on hunches or speculation and take it one day at a time. We remain cautiously bullish.
Year-to-date net-of-fees performance:
ALPHA INCOME: -1.67%
Performance is presented net of the maximum advisory fees and commissions (2%). Numbers indicated with (+) for positive return and (-) for negative return.
-G. Chadd Mason, CEO
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