October 21st, 2019

Improvements at Home and Abroad

Relatively strong earnings reports over the past week in the U.S. helped push our major stock indexes back within reach of their all-time highs. Banks and other financial firms brought in stellar reports. This has caused the financial sector to take the lead among equity components of the S&P 500. The Sector SPDR Index (XLF) is up more than 6% in the last nine trading days. The leadership in finance also coincides with a steepening of the yield curve. The 10 Year Treasury Bond is currently yielding 1.70%, while the 2 Year is yielding 1.60%. While this may not seem like a big difference, it is a vast improvement from what we have seen the past several months. A steep yield curve is good for banks, and ultimately increases money supply within the system. Make no mistake, it is a good sign when banks are doing well and consumers (and businesses) have access to loans.

On the international front, the United Kingdom’s exit (aka Brexit), from the European Union is down to the wire. October 31 is the deadline for a compromise on trade and immigration to be reached within the British Parliament and approved by the rest of Europe. A disorderly exit is not in anyone’s best interest, so you have to believe a deal will eventually be cut despite the constant back and forth by England’s leadership. Investors appear to feel the same way, seeing as the major European stock index (FEZ) is at an all-time high. Finally, China just reported the weakest growth since records have been published—going back to the early 1990’s. Chinese GPD came in at 6% and is expected to fall to 5.8% by the end of the year. The trade war with the U.S. is taking a toll on manufacturing and exports, as is a general cooling off of Chinese consumers. Chinese equity markets have been weak for the past two years and the data supports it. Given that China’s economy is not purely market driven (free), it is likely that their government will intervene at some point to try and stimulate growth. The low GDP numbers out of China also suggest they are eventually going to want to resolve the trade issues with the U.S. Just this morning, President Trump indicated that China is on track to complete a trade deal in November. Of course, it is sometimes hard to know what is substance and what is just talk.

Commodities, including energy, are still weak and evidence a lack of global demand. The transportation index (IYT)  has also underperformed, but is improving, and is up 9% in the past two weeks. We are watching for a breakout in U.S. equity indexes (SPY) just above current levels, along with some buying of commodities and transportation stocks. If all this can come together, we just might have a rally in the cards for the fourth quarter.

At Cabana we are reallocating this week to our Moderately Bullish scene in response to improving conditions.

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.

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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.

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