12/22/25
Stocks were up for a second straight day on Friday, and unlike on Thursday, they held onto most of those gains heading into the close. The small caps of the S-fund led the way and the I-fund trailed both the C and the S-funds as the dollar pushed higher and moved above some resistance, which could present an interesting change in character. Yields were up sending the F-fund lower.
First off, we know the Fed has been cutting interest rates, but whether they cut again at their January meeting is still up in the air, as the odds favor no change in January, and just a 50% chance of a cut by the March meeting.
But what is working for the stock market is the recent ending of QT, quantitative tightening, and the balance sheet is showing signs that they will be increasing it, and the their plan to is to add $40 billion a month.
It was the first significant uptick, although the chart hasn't quite broken out yet from the descending trend which has been moving lower since about mid-2022, but it may be on the verge, and this liquidity is almost always good news for the stock market.
The S&P 500 (C-fund) is still in the process of filling out a right shoulder of an inverted head and shoulders pattern. These are typically bullish formations, but we haven't seen any breakouts in any of the major indices yet, except for the Dow Transportation Index, which is considered a market leader. The question is whether the typical Santa Claus rally can help break it out to new highs. The Santa Claus Rally is defined as the last 5 trading days of the year plus the two trading days of the new year. It is up over 70% of the time with an average return of 1.3%. Trading volume was extremely high as it was a major expiration day for many options and index futures contracts.
The rally in the dollar on Friday was noticeable as it not only broke out of a descending channel, but it also blasted back above the 50-day average. It is meaningful because a strong dollar tends to hold the I-fund back some, so does that mean it is time to avoid the I-fund?
The short answer is probably, no. That's because the dollar actually bottomed in July and has been chopping higher since, except for the recent pullback off the November high, and the I-fund has done just fine, if not exceptional, all year. It was the highest returning fund last week, this month, and for the year.
These next charts look at the comparisons between funds - a ratio of two funds. These ratios do show something interesting for the I-fund. The top chart compares the C-fund (S&P 500) to the I-fund (ACWX.) The recent decline shows that the I-fund has been outperforming the C-fund this month, but it looks like this ratio is about to test some support, and if that holds, the C-fund could start outperforming in the short-term, and the breakout in the dollar may be confirming evidence. When this chart is moving up, the C-fund is outperforming.
The second compares the C and S-funds and it looks like there is some resistance in the current area of the C / S ratio, so if this turns down, the S fund would be outperforming the C fund. However, there is also support rising off the September lows so the S-fund advantage may be short-lived.
The bottom chart above compares the S and I-funds and it hasn't been much of a fight for the I-fund, although the S-fund did explode off the November lows to help it play catch up, but it ran into resistance early in December. This suggests the I-fund is still outperforming and potentially a better bet going further, at least until this chart changes.
The stock market and TSP offices will be closed for Christmas on Thursday, December 25. Also, the stock market will close early at 1:00 p.m. ET on Wednesday the 24th. The TSP transaction deadline is unchanged for Wednesday.
The DWCPF Index (S-Fund) was able to hold at the key 50-day average last week, similar to the hold in the left side of the inverted head and shoulders pattern. It has 7 trading days to attempt to make new highs for the year.
ACWX (I-fund) is flirting with breaking out but backed off on Friday while testing those prior highs. The dollar's breakout may not stop the fund from making new highs, but it does give it a bit of a headwind.
BND (bonds / F-fund) pulled back but it held at the that sticky support line that refuses to get out of the way.
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
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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 use additional methods and strategies to determine fund positions.
Stocks were up for a second straight day on Friday, and unlike on Thursday, they held onto most of those gains heading into the close. The small caps of the S-fund led the way and the I-fund trailed both the C and the S-funds as the dollar pushed higher and moved above some resistance, which could present an interesting change in character. Yields were up sending the F-fund lower.
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First off, we know the Fed has been cutting interest rates, but whether they cut again at their January meeting is still up in the air, as the odds favor no change in January, and just a 50% chance of a cut by the March meeting.
But what is working for the stock market is the recent ending of QT, quantitative tightening, and the balance sheet is showing signs that they will be increasing it, and the their plan to is to add $40 billion a month.
It was the first significant uptick, although the chart hasn't quite broken out yet from the descending trend which has been moving lower since about mid-2022, but it may be on the verge, and this liquidity is almost always good news for the stock market.
The S&P 500 (C-fund) is still in the process of filling out a right shoulder of an inverted head and shoulders pattern. These are typically bullish formations, but we haven't seen any breakouts in any of the major indices yet, except for the Dow Transportation Index, which is considered a market leader. The question is whether the typical Santa Claus rally can help break it out to new highs. The Santa Claus Rally is defined as the last 5 trading days of the year plus the two trading days of the new year. It is up over 70% of the time with an average return of 1.3%. Trading volume was extremely high as it was a major expiration day for many options and index futures contracts.
The rally in the dollar on Friday was noticeable as it not only broke out of a descending channel, but it also blasted back above the 50-day average. It is meaningful because a strong dollar tends to hold the I-fund back some, so does that mean it is time to avoid the I-fund?
The short answer is probably, no. That's because the dollar actually bottomed in July and has been chopping higher since, except for the recent pullback off the November high, and the I-fund has done just fine, if not exceptional, all year. It was the highest returning fund last week, this month, and for the year.
These next charts look at the comparisons between funds - a ratio of two funds. These ratios do show something interesting for the I-fund. The top chart compares the C-fund (S&P 500) to the I-fund (ACWX.) The recent decline shows that the I-fund has been outperforming the C-fund this month, but it looks like this ratio is about to test some support, and if that holds, the C-fund could start outperforming in the short-term, and the breakout in the dollar may be confirming evidence. When this chart is moving up, the C-fund is outperforming.
The second compares the C and S-funds and it looks like there is some resistance in the current area of the C / S ratio, so if this turns down, the S fund would be outperforming the C fund. However, there is also support rising off the September lows so the S-fund advantage may be short-lived.
The bottom chart above compares the S and I-funds and it hasn't been much of a fight for the I-fund, although the S-fund did explode off the November lows to help it play catch up, but it ran into resistance early in December. This suggests the I-fund is still outperforming and potentially a better bet going further, at least until this chart changes.
The stock market and TSP offices will be closed for Christmas on Thursday, December 25. Also, the stock market will close early at 1:00 p.m. ET on Wednesday the 24th. The TSP transaction deadline is unchanged for Wednesday.
The DWCPF Index (S-Fund) was able to hold at the key 50-day average last week, similar to the hold in the left side of the inverted head and shoulders pattern. It has 7 trading days to attempt to make new highs for the year.
ACWX (I-fund) is flirting with breaking out but backed off on Friday while testing those prior highs. The dollar's breakout may not stop the fund from making new highs, but it does give it a bit of a headwind.
BND (bonds / F-fund) pulled back but it held at the that sticky support line that refuses to get out of the way.
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 use additional methods and strategies to determine fund positions.
