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Asset Preservation Capital, LTD
(248) 649-4759

September 8th, 2020

Chadd Mason, CEO The Cabana Group

Stocks Enter Uncharted Waters During Most Volatile Time of the Year

Equity markets hit a wall on Thursday and selling began in earnest for the first time since March. In my opinion, the straight up move in equity indexes since the March 23 low was not supported by the country’s basic economics. I have previously discussed the lack of participation by many important sectors, as well as the idea that the “stock market” advance was actually just an incredible advance by a few huge tech companies. Last week, I suggested that the conditions were ultimately unsustainable. Eventually, even the best and highest flying of tech companies would be impacted by very basic things like unemployment, a quarantined population and many businesses still operating at half capacity or less. Over three short days we have seen the S&P 500 drop 8%, while the Nasdaq dropped nearly 11%. The adage that the higher they fly, the further they fall has meaning in the world of investing.

The S&P 500 closed today at session lows and right at its 50-day moving average. The pullback to this level represents at best a much-needed dose of reality and some healthy consolidation before markets can move higher with broad participation. At worst, the high-volume selling is the beginning of a deeper correction representing a very murky financial outlook for the remainder of the year. One thing is for sure – we are in uncharted waters during the most volatile time of the year. Top that off with the most divided nation of my lifetime, a presidential election seven weeks away that epitomizes that divide, and the worst medical pandemic in one hundred years yet to be resolved…

I remain optimistic that investors got most of it right over the past five months and that the worst is behind us. We are still very much within the medium-term uptrend and that will not change until the S&P 500 closes below 3100. That technical level represents the all-important 200-day moving average and the summer lows. If we do not hold at current levels, expect a drop to those prices in the coming weeks. That would represent a correction of 14-15% from the recent highs. Given the advance of more than 50% since the end of March, a 15% correction would seem reasonable. A drop below that level would give me pause. I would expect volatility to continue over the next few weeks as this (and other issues) get resolved.

As always, it is when things get scary that investors need a process to fall back on. “Trust the process,” is one of the most valuable pieces of advice I have ever heard. I have no idea where we will stand on many things come January 1, 2021. What I do know is that we will respond to market conditions as they evolve, and we will follow our process at Cabana. We may not catch tops or bottoms, but we will seek to avoid large losses when things are bad and stay invested to participate in gains when things are good.

We remain in our Bullish/Transitional Bullish Scene but are preparing to reallocate to remove risk across all portfolios should conditions continue to deteriorate.

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.