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October 7, 2019

Chadd Mason

The Jury is Still Out

Last week saw more of the same volatility that has plagued equity markets since April. Over the past six months there have been no less than five trends encompassing moves up/down in stock prices greater than 5%. These wild swings in stocks have been accompanied by similar moves in bond yields and bond prices. All of this “noise” in stocks and bonds has resulted in the U.S. stock market going nowhere since April 30. In fact, the S&P 500 is slightly down from that point in time.

I am a big believer in the market being a very efficient arbiter of price. Especially the price of major asset classes like broad U.S. equities, bonds, real estate and commodities. As a trial lawyer (and judge) in my former life, I can tell you that twelve people on a jury are amazingly good at seeing through the mud and getting to the truth. Investors worldwide are kind of like a huge jury working together to sort through what is real and what is not in  the never-ending quest to find the best return on an investment relative to risk. The past six months seem a lot like the jury going back to the jury room to deliberate and think through all the back and forth that has occurred during a trial. The goal being to sift through what was said, what evidence was presented, and then determine what bears on the issue at hand. In comparing investing to a trial, the lawyers are the economists, market analysts, the Federal Reserve, trade tariffs, the President, politicians here and abroad, and the omnipresent talking heads on CNBC. The evidence is data like interest rates, unemployment numbers, housing, GDP, manufacturing output as well as import and export numbers. Lastly, think of price as the jury’s verdict.

When we take a step back and look at all this, it is clear that the jury is still fighting it out among themselves and trying to reach a verdict. For those who have watched the movie “Twelve Angry Men,” you know what I mean. The verdict that our jury of worldwide investors is trying to reach is whether this bull market is over, and a recession is upon us. The sharp waves up and down in stock prices evidence a moment or two (or a month) of compelling facts being discussed that lead to a conclusion one way or another.

Unfortunately, we don’t have the all-needed unanimous decision yet that will dictate the performance of asset classes over the medium to longer term. The good news is that the longer the jury stays in the room and prices stay rangebound, the more certain the verdict will be when they break out. For those keeping track, the high end of the range is 3000 on the S&P500 and the low end is 2720.

At Cabana, we don’t predict when the answer will come. We remain prepared for either outcome while we wait. In response to the sharp sell-off that began at the end of September we have reallocated, notably removing risk in our more conservative Target Drawdown Portfolios. We are now moderately bullish.

IMPORTANT DISCLAIMERS

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. 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 www.adviserinfo.sec.gov/.

The Financial Advisor Magazine 2018 Top 50 Fastest-Growing Firms ranking is not indicative of Cabana’s future performance and may not be   representative of actual client experiences. 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 for more information regarding the ranking.

The Financial Advisor Magazine 2019 Top 50 Fastest-Growing Firms ranking is not indicative of Cabana’s future performance and may not be representative of actual client experiences. Cabana did not pay a fee to participate in the ranking and survey and is not affiliated with Financial Advisor Magazine. Working with a highly-rated advisor also does not ensure that a client or prospective client will experience a higher level of performance. These ratings should not be viewed as an endorsement of the advisor by any client and do not represent any specific client’s evaluation. RIAs were based on number of clients in 2018, percentage growth in total percentage assets under management from year end 2017 to 2018, and growth in percentage growth in assets per client during the same time period.  Visit www.fa-mag.com for more information regarding the ranking.

Cabana claims compliance with the Global Investment Performance Standards (GIPS®). In addition to the firm’s third-party verification, six of Cabana’s core portfolios have been performance examined consistent with GIPS® standards. The Global Investment Performance Standards are a trademark of the CFA Institute. The CFA Institute has not been involved in the preparation or review of this report/advertisement. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS® standards. Verification does not ensure the  accuracy of any specific composite presentation unless an independent performance examination has been conducted for a specific time period. Past performance is not indicative of future results. Due to various factors, including changing market conditions, the portfolios may no longer be reflective of current positions.

No client should assume that the future performance of any specific investment or strategy will be profitable or equal to past performance. 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 any investor. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. While loss tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account. It is the responsibility of the advisor to determine what is suitable for the client. An advisor should not simply rely on the name of any portfolio to determine what is suitable. Cabana manages assets on multiple custodial platforms. Performance results for specific investors may vary based upon differences in associated costs and asset availability.