August 24th, 2020
Chadd Mason, CEO The Cabana Group
Tech Companies Lead the S&P 500 to Record Highs
This past week the S&P 500 battled resistance at its previous all-time highs (just below 3400). We had two consecutive record closes, only to fall back after the Wednesday release of minutes from the previous Federal Reserve meeting. Those minutes revealed just how much uncertainty exists within the minds of our central bankers. The gist is that our economy took an unprecedented beating during the second quarter and it is entirely unclear when or even if we will return to pre-COVID strength as an economy. A medical solution is the only way out at this point.
Despite the Fed’s gloomy assessment, the broad indexes closed higher on Friday and are higher again today. As of this writing, the S&P 500 is at 3420 and holding. This is certainly a good sign and strong evidence that we can go higher. I remain concerned that the bulk of the rally has occurred on the back of a select few gigantic companies. These include Amazon, Google, Apple and Netflix. The most common indexes, such as the Dow Jones, Nasdaq and S&P 500 are Market-cap weighted, which means that the bigger the company, the more it makes up the index in percentage terms. These few behemoths now make up more than 20% of the entire S&P 500. This skews the performance of the index to reflect the performance of just a few companies, rather than the performance of the broader economy. Unfortunately, if you look “under the hood” you will see that the vast majority of companies are underperforming, and many remain in bear Market conditions. Investors who have single stock portfolios know what I mean.
We need to see broad participation by more than just the tech sector for this rally to continue. We need small-caps and mid-caps to catch up and outperform as they typically due in a healthy economy. As I have stated the past two weeks, we need to see the financial sector participate. Banks have lagged far behind and that needs to change. Some of that is occurring today, but one day does not make a trend.
I am an optimistic investor and the glass is at least half full right now. I just would feel a lot better if some of the corporate good news was spread out a little bit. As good as Apple and Amazon are, they can’t carry the entire U.S. economy alone.
At Cabana we remain in our Bullish/Transitional Bullish Scene.
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 tradeMarc 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 firstname.lastname@example.org.