Stocks were down sharply on Tuesday, and it was a lot worse than the 79-point / -1.57% loss that we saw at the close on the S&P 500. The index was up over 200-points, or 4% in early trading so it lost that, then closed down 1.57% for a 6.8% decline from top to bottom (5267 to 4910.) For the inquiring minds, I know those don't add up, but that's how percentages work. Monday's low was lower, but yesterday was the lowest close of the year.
And the 5-day chart above shows the Swiss cheese of gaps opened with some already filled. The low was still at Monday's opening trading so we've had almost two full days of trading without touching that low again. Is today the day or do we get another morning rally (fail or no fail?)
This is an extraordinary time for markets. It's not quite up there with the Covid market, but it's rough action. During Covid, the bleeding stopped and the market reversed dramatically after the Fed cut rates to 0%, opened the spigots on their balance sheet, and the government started to dump stimulus into the economy. The Fed is planning to cut interest rates more than once this year, but so far Powell is sitting idly.
I don't like to get into politics, and this isn't as much political as analyzing the tactics. Make no mistake about it -- Donald Trump wanted these tariffs as far back as when he stated it on the Oprah Winfrey's show in the 1980's. More recently however, Trump has stated that his goal is to get interest rates down by pushing the 10-year yield down, knowing the Fed would likely have to follow. He wanted this as an effort to lower the debt payments and reduce the deficit faster.
Unfortunately, one way to get yields and interest rates down is to hurt the economy. That part is working and the 10-year yield has come down from 4.6% when when he took office, down below 3.9% last Friday. It has since bounced back some but the Fed hasn't budged yet. So the only one who may have the power to turn this market around quickly is President Trump, who has been saying he is not looking to negotiate the tariffs, although we all know he is always negotiating, so we have to be open to the fact that something could happen at any time.
Here is that 10-year Treasury Yield and it rallied sharply for a second straight day after last Friday's positive reversal. There's more resistance near 4.3% and with the threat of a weakening economy, I don't know why this would move above that resistance in this environment. There's 0% chance that the Fed is going to raise interest rates so I have to believe this bounce in yields is temporary. Bond prices and the F-fund go down when yields go up.
Based on this chart, they should be cutting now, as they historically track the 2-Year Treasury Yield.
Back to the stock market: Remember the 400-point rally in the S&P 500 during a 30-minute period early on Monday morning? That was just from a rumor of a pause in tariffs. What happens if we get something real?
So these giant intraday moves don't make it easy on us TSPers who have to make a decision in the morning for an end of day transaction. The market can move 7% on us while we're waiting. But that's what we have right now.
The S&P 500 (C-fund) shows the long candlesticks with ranges in the hundreds points. But as I mentioned, yesterday somehow avoided making a lower low compared to Monday's low. That could end at the open today, but it means that twice people were buying near 4900 on the S&P. Volume remains high and this usually means we're near a turn, but it doesn't mean it can't go low before it happens. It's just that the risk / reward for gains in the next week or two are getting better every day.
Here's the Dow Transportation Index - one of the main market leaders and a very economically sensitive index. I have two charts. One shows the index which is now 3500 points below its 200-day EMA. It didn't quite get that far below the average in 2022 and it briefly fell more than 3500-points below it in 2020 (covid.)
The lower chart shows it as a percentage in a logarithmic chart that shows 2020's decline was actually worse percentage-wise, and 2022 is about where we are now.
I have no idea how much lower stocks can go down during this correction/- bear market, and staying in cash until the smoke clears is certainly a viable approach to a market like this. But how many times have you looked at a chart of something like Apple, Microsoft, Nvidia, Tesla, etc., and regretted not buying on that previous big decline? But it's different this time, right? The tariffs are different, but it's always something.
I've been doing some buying of individual stocks outside of the TSP, and at least nibbling to get your foot in the door down here may be something you'll appreciate by the end of the year - or at least be able to potentially sell at a higher price at some point in the interim.
The futures were down on Tuesday night, but that doesn't mean much in this whippy market.
DWCPF (S-fund) also erased a giant early gain and the chart is struggling, and trying to hold at Monday's lows. The overhead gaps are there for the eventual taking, but I suppose it could go lower first before attacking those gaps.
ACWX (I-fund) was down but because of the delay in reaction from the overseas markets, it didn't get hit quite as hard. The dollar was bouncing around wildly yesterday but it closed lower, which also helped the I-fund outperform the US funds.
BND (F-fund) was down sharply again and the recent strength in yields continues to confound me. Perhaps the savvy bond traders get it, but I see this as a move that could easily get reversed in the coming days, unless there's something brewing that I don't see yet.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
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Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We may use additional methods and strategies to determine fund positions.
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As bad as it was yesterday, the S&P 500 actually made a higher high and a higher low over Monday's range. Let's look at the 1-day, 2-day, and 5-day charts to appreciate the wild swings. Yesterday's move from top to bottom was almost 7%. The tremendous gap up open of 131-points was filled by about 1 PM ET. You can see that better on the 2-day chart in the middle.
And the 5-day chart above shows the Swiss cheese of gaps opened with some already filled. The low was still at Monday's opening trading so we've had almost two full days of trading without touching that low again. Is today the day or do we get another morning rally (fail or no fail?)
This is an extraordinary time for markets. It's not quite up there with the Covid market, but it's rough action. During Covid, the bleeding stopped and the market reversed dramatically after the Fed cut rates to 0%, opened the spigots on their balance sheet, and the government started to dump stimulus into the economy. The Fed is planning to cut interest rates more than once this year, but so far Powell is sitting idly.
I don't like to get into politics, and this isn't as much political as analyzing the tactics. Make no mistake about it -- Donald Trump wanted these tariffs as far back as when he stated it on the Oprah Winfrey's show in the 1980's. More recently however, Trump has stated that his goal is to get interest rates down by pushing the 10-year yield down, knowing the Fed would likely have to follow. He wanted this as an effort to lower the debt payments and reduce the deficit faster.
Unfortunately, one way to get yields and interest rates down is to hurt the economy. That part is working and the 10-year yield has come down from 4.6% when when he took office, down below 3.9% last Friday. It has since bounced back some but the Fed hasn't budged yet. So the only one who may have the power to turn this market around quickly is President Trump, who has been saying he is not looking to negotiate the tariffs, although we all know he is always negotiating, so we have to be open to the fact that something could happen at any time.
Here is that 10-year Treasury Yield and it rallied sharply for a second straight day after last Friday's positive reversal. There's more resistance near 4.3% and with the threat of a weakening economy, I don't know why this would move above that resistance in this environment. There's 0% chance that the Fed is going to raise interest rates so I have to believe this bounce in yields is temporary. Bond prices and the F-fund go down when yields go up.
Based on this chart, they should be cutting now, as they historically track the 2-Year Treasury Yield.
Back to the stock market: Remember the 400-point rally in the S&P 500 during a 30-minute period early on Monday morning? That was just from a rumor of a pause in tariffs. What happens if we get something real?
So these giant intraday moves don't make it easy on us TSPers who have to make a decision in the morning for an end of day transaction. The market can move 7% on us while we're waiting. But that's what we have right now.
The S&P 500 (C-fund) shows the long candlesticks with ranges in the hundreds points. But as I mentioned, yesterday somehow avoided making a lower low compared to Monday's low. That could end at the open today, but it means that twice people were buying near 4900 on the S&P. Volume remains high and this usually means we're near a turn, but it doesn't mean it can't go low before it happens. It's just that the risk / reward for gains in the next week or two are getting better every day.
Here's the Dow Transportation Index - one of the main market leaders and a very economically sensitive index. I have two charts. One shows the index which is now 3500 points below its 200-day EMA. It didn't quite get that far below the average in 2022 and it briefly fell more than 3500-points below it in 2020 (covid.)
The lower chart shows it as a percentage in a logarithmic chart that shows 2020's decline was actually worse percentage-wise, and 2022 is about where we are now.
I have no idea how much lower stocks can go down during this correction/- bear market, and staying in cash until the smoke clears is certainly a viable approach to a market like this. But how many times have you looked at a chart of something like Apple, Microsoft, Nvidia, Tesla, etc., and regretted not buying on that previous big decline? But it's different this time, right? The tariffs are different, but it's always something.
I've been doing some buying of individual stocks outside of the TSP, and at least nibbling to get your foot in the door down here may be something you'll appreciate by the end of the year - or at least be able to potentially sell at a higher price at some point in the interim.
The futures were down on Tuesday night, but that doesn't mean much in this whippy market.
DWCPF (S-fund) also erased a giant early gain and the chart is struggling, and trying to hold at Monday's lows. The overhead gaps are there for the eventual taking, but I suppose it could go lower first before attacking those gaps.
ACWX (I-fund) was down but because of the delay in reaction from the overseas markets, it didn't get hit quite as hard. The dollar was bouncing around wildly yesterday but it closed lower, which also helped the I-fund outperform the US funds.
BND (F-fund) was down sharply again and the recent strength in yields continues to confound me. Perhaps the savvy bond traders get it, but I see this as a move that could easily get reversed in the coming days, unless there's something brewing that I don't see yet.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We may use additional methods and strategies to determine fund positions.
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