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April 7th, 2020

Chadd Mason, CEO The Cabana Group

Market Swings Continue Among Coronavirus Optimism

Equity markets continue to experience wild swings in both directions. Last week, we saw two big up days, mixed in with three down days. The S&P 500 finished down 2.5% for the week and down almost 25% year -to-date. Yesterday (April 6), those same markets jumped 7% in the face of dire economic predictions,   resulting from the coronavirus shutdown. The impetus is the hope that Europe is on the downhill side of the peak in infections, that we will follow a similar pattern, and that New York is seeing its peak right now. The buying yesterday in risk assets is pushing us right back to a 38% retracement of the selloff that began six weeks ago. For those technical analysts out there, this represents the minimum retracement (bounce) following a steep sell off that breaks support levels. We hit this same level early last week and were unable to hold before selling began again. We will soon see if that pattern repeats itself.

While I remain hopeful that some good news on the medical issues at hand will allow stocks and our society to move forward, the fact remains that this event has caused severe technical and fundamental damage to all risk assets. The fundamental damage in the form of lost earnings will not be fully known for several months. We will just start to see how bad this is hurting businesses when earnings from the first quarter begin to come in. Most analysts are predicting a second quarter loss in GDP of between 25% and 30% (Moody’s Analytics). This expected loss is simply staggering and exceeds anything seen during the 2008 recession or the Great Depression that began in 1929. The closures to business nationwide have caused more than 10 million people to file for unemployment benefits in the past two weeks alone. This is unprecedented in our history. All these factors lead me to believe that we are in for a long hard slog   before investors can even begin to fairly price assets. Until then, we will continue to see traders move markets up and down in short-term violent swings.

I had a call yesterday with an advisor partner who was receiving calls from clients watching the news and seeing a 7% rally. They wanted to know if the bear market was now over. He was spot on in explaining to his clients that daily market moves in any direction of 4 and 7% are not evidence of a healthy market. He also explained that any process-driven investment strategy, whether technical based or fundamental, would not be jumping back into risk assets with both feet.

At Cabana, we combine both technical and fundamental data within our rules-based process. We don’t predict or guess. We allocate to assets that are relatively attractive based upon what we see today. We may not catch the bottom or the top of any market, but we will certainly have a sound basis for the investments that we make. At the end of the day, that is what investing is all about. What we are seeing today are extraordinarily difficult conditions. It is going to take much more than a few days of big rallies to change that. We are in our most bearish scene and hedged across asset classes.

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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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.

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