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June 3rd, 2019

Below is a snapshot of last week’s market performance and what to watch in the weeks ahead from Chadd Mason, Cabana CEO and co-founder.

The U.S. equity market selloff has continued for the third straight week. All major indexes are now below their 200-day moving averages. In just one month, the Dow and S&P 500 are down more than 7%, while the Nasdaq is down almost 12%. While all indexes remain positive for the year, the current decline is concerning to say the least.

In my opinion, this week is very important. We need to reclaim the 200-day moving average by week’s end to prevent a more significant decline. Markets are approaching oversold levels and are due for a bounce, which may help. If we can’t recover in short fashion, be prepared for further declines over the next weeks and months.

All this selling is blamed on the multiple trade wars that are now in the works. Mexico was added to China last week. Consumer discretionary stocks and technology stocks continue to see the worst of the selling. If China takes action against Apple, which is rumored, it will impact all major indexes in the United States.

Dividend payers, corporate grade bonds, treasuries and real estate are outperforming. The same can be said of consumer staples and utilities. Our readers should understand that this reflects a move away from risk by institutional traders. The big money is being reallocated to assets that do well in a weakening economy – assets that pay dividends and bond interest even if their price is no longer rising because of increased earnings. People need air-conditioning during the summer. The utilities ETF is a play on that. Additionally, people still need diapers and shampoo even in a recession. Tobacco and alcohol stocks are notoriously attractive when things get dicey. The consumer staples ETF is made up of a lot of these companies. All in all, investors are moving down the risk spectrum. Junk bonds are the next candidate likely to fall. These assets perform similarly to stocks and typically experience selling if the economy begins to slow.

Interestingly, foreign markets appear to have bottomed out at the end of May and are positive for the past week, just as the selling here has intensified. I read over the weekend that the world economy, outside the United States, has been in a recession for the past nine months and is now poised to come out of it. The price of developed and emerging markets over the past year certainly suggests this to be the case. It will be worth watching to see if the international economy begins to rebound despite the trade tariffs, while the U.S. falls into a recession induced bear market later in the year. The 10-year Treasury yield is now at levels not seen since 2017, and that is not a particularly good sign for growth going forward. Investors are currently willing to tie up their money for 10 years in return for a 2% annual yield. That is not a sign of confidence!

At Cabana, we remain moderately bullish but are preparing to once again reallocate 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.

Cabana claims compliance with the Global Investment Performance Standards (GIPS®). In addition to the firm’s third-party verification, six of Cabana’s core portfolios have been performance examined consistent with GIPS® standards. The Global Investment Performance Standards are a trademark of the CFA Institute. The CFA Institute has not been involved in the preparation or review of this report/advertisement.  Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS® standards. Verification does not ensure the  accuracy of any specific composite presentation unless an independent performance examination has been conducted for a specific time period. Past performance is not indicative of future results. Due to various factors, including changing market conditions, the portfolios may no longer be reflective of current positions.

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.