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June 1st, 2020

Chadd Mason, CEO The Cabana Group

The Stock Market Continues to Climb as Protests Spread Nationwide

Equity markets closed out the month of May with big gains. The S&P 500 climbed more than 5% for the month despite a lot of volatility. Swings of more than 1% a day were the norm as investors continue to try and sort through the carnage that has been the past three months. These gains are on the back of April’s rebound from the March 23 low and leave the blue-chip index down only 6% for the year. Impressive is an understatement when considering the fact that it was down 35% just over eight weeks ago.

In addition to the simple percentage gains, the S&P 500 closed the week and month above its 200-day moving average. This is likely the most important news of all. That technical barrier is watched by retail and institutional investors alike. When we are above it, many large money managers that follow rules-based systems must move back into stocks and off the sidelines. If we can hold above the 200-day moving average over the near term, we may see several big up days as cash comes out of money market accounts and back onto the playing field.

So, what is driving this obvious disconnect between the stock market and everything else going on in our country? How can the stock market keep climbing as it appears our country is falling apart? A deadly virus continues to spread among us, now having killed more people in four months than the Vietnam War did in over a decade. Unemployment is at the highest level in one hundred years. Forty million people are living off government benefits and will likely do so for the remainder of 2020 as our leaders attempt to stave off a tsunami of evictions, foreclosures, and bankruptcies, which are staring us in the face. Our national debt is many trillions of dollars and climbing. Our cities are being burned and looted as years and years of failed policies (and promises) come home to roost. Protesters of all colors and walks of life are coming together to push for meaningful change. I am afraid this change is about much more than police brutality (although that is certainly enough by itself). I am afraid that COVID-19 and the aftermath of shutdowns and layoffs has further shined a harsh light on the reality of the divide between those who have in this society and those who do not. It is a scary thing when a part of our population is living a different life altogether than most others.

Our founding fathers wrote of this threat. Many economists and scholars have opined on this phenomenon. My son Jack, who just graduated from high school, told me that he studied it as well. He learned that it was a natural progression associated with the transformation of a society from agricultural to manufacturing and then from manufacturing to technology. His class was AP Human Geography and he was studying part of what is known as the “Demographic Transition Model”. The idea is that as our society evolves, many industries and people get left behind. When their economic value becomes less relevant, the associated wages and opportunities likewise decline. As advancement becomes increasingly pronounced, more and more people are disenfranchised, and a smaller and smaller group can move forward. The effect becomes cyclical and self-perpetuating. Many wise people on both sides of the political aisle have studied this and acknowledged that over time our evolution becomes a threat to the existence of the society itself. In other words, the society becomes too smart for its own good and cannot survive. I certainly do not have any great answers to this, and as we look back over the last one thousand years of history, no one else has either.

My job is to protect my clients’ money first and grow their money second. I am not a politician and do not base our investment decisions on political policies or even how good or bad I think we are doing as a country or society. I just want to know the game we are playing and can take it from there. Are we playing basketball or football? If I know that, I know how the ball is going to bounce and I can do my job. The market is a lot like me as a money manager. It is agnostic and is just concerned with doing its job. That job is pricing assets relative to one another. Right now, the market is looking ahead through all the noise and indicating that opportunities in stocks outweigh opportunities in other assets like bonds, treasuries, commodities, and real estate. It is not concerned with the Demographic Transition Model and didn’t take AP Human Geography, but I am concerned. Not as an investor or money manager, but as an American. I love my country and can’t imagine being born anywhere else. I believe we are the best that has ever been and can and will do what no other country ever imagined. I am still concerned.

At Cabana, we remain in our moderately bearish allocation. We are prepared to reallocate again should conditions warrant.

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.

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.

Cabana claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a trademark of the CFA Institute. The CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS Report and/or a firm’s list of composite/pooled fund descriptions please email your request to info@thecabanagroup.com.