Stocks were mixed, choppy, and on the flat side yesterday, depending on the index. Small caps lagged so the rotation trade has taken a break, and big tech was back in the driver's seat. Bonds rallied as yields continue to slip lower. This is the point where the bears will look for the relief rally to run out of steam, and the bulls will push their case that the correction is over.
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It wasn't the best Monday, but compared to last week's crooked number percentages losses, things have certainly calmed down for now. The VIX (Volatility Index) has gone from 65 to below 19 at one point yesterday, all within a week. There were about 2 stocks down yesterday, for every one that was up.
In the last few weeks there has been a shift in the relationship between bond yields and the stocks market. Months ago it was all about yields coming down. If bond yields were falling (bond prices rallying), stocks were rallying. Now that inflation isn't the major concern for investors, bonds are being used more as the safe haven again. That means when stocks are falling, bond prices are rallying (yields moving down.)
What does this mean for us? Not much except this is more typical action. Typically when stocks are struggling, you could buy into the F-fund for some safety as bonds tended to stabilize and even rally during economic slowdowns. Since inflation was an issue, it was the opposite, until more recently.
Yesterday was an example as bonds and the F-fund were up (10-year Treasury Yield down), while the stock market was struggling a bit, especially for the more economically sensitive small caps.
Also typically, but certainly not precisely, the price of oil moves up and down with the strength of the economy like bond yields. When the economy grows, the demand for oil increases and prices tend to go up. Oil is actually in a fairly sweet spot right now, but it shot up 3.7% yesterday, and while it looks fine now, the recent quick spike higher is both encouraging news for the economy, but concerning for gas prices. That's the short-term outlook.
In the longer-term view it actually looks rather toppy, unless that support holds and it takes another trip to the top of that long trading channel. If we do start seeing oil below $70 I would be concerned for the economy, but instead it hit $80 at one point yesterday, so even though it may mean higher gas prices, it's moving in the right direction as far as the economy goes.
Another good sign of economic conditions is the direction of the Dow Transportation Index, which was down again yesterday and that's another day pulling back from the plethora of overhead resistance. This is a concern.
The small caps of the Russell 2000 also failed to hold up coming into the new week. I do see a possible small bull flag on the chart, but otherwise it could be topping out after the relief rally.
We will get the PPI report this morning, and the key CPI report tomorrow. The Fed is probably more concerned about inflation than anyone, and they control the interest rates so it does remain important, but the weekly jobless claims numbers on Thursday may be more of a market movers as investors focus on the strength of the economy.
The S&P 500 (C-fund) was flat yesterday and the spinning top formation was a sign of indecision, and perhaps a turning point. It's not that persuasive but it does come near a confluence of resistance where it could run into some trouble. Taking a breather here after the nearly 250-point rebound of the lows in a week, wouldn't be the worst thing that could happen.
The DWCPF (S-fund) lagged badly yesterday as big tech stole the spotlight back from the rotation trade. The chart has some issues and getting over the 2020 area looks like the big test.
The EFA (I-fund) was down slightly and it too has come a long way as it makes its way back toward some potential resistance.
BND (F-fund) led the TSP funds yesterday as yields pulled back. It spent a day below that old resistance line, which may help as support for a little while. The positive outside reversal day yesterday suggests it could have more upside left.
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.html
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.
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[TD="width: 311, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
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[/TR]
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It wasn't the best Monday, but compared to last week's crooked number percentages losses, things have certainly calmed down for now. The VIX (Volatility Index) has gone from 65 to below 19 at one point yesterday, all within a week. There were about 2 stocks down yesterday, for every one that was up.
In the last few weeks there has been a shift in the relationship between bond yields and the stocks market. Months ago it was all about yields coming down. If bond yields were falling (bond prices rallying), stocks were rallying. Now that inflation isn't the major concern for investors, bonds are being used more as the safe haven again. That means when stocks are falling, bond prices are rallying (yields moving down.)
What does this mean for us? Not much except this is more typical action. Typically when stocks are struggling, you could buy into the F-fund for some safety as bonds tended to stabilize and even rally during economic slowdowns. Since inflation was an issue, it was the opposite, until more recently.
Yesterday was an example as bonds and the F-fund were up (10-year Treasury Yield down), while the stock market was struggling a bit, especially for the more economically sensitive small caps.
Also typically, but certainly not precisely, the price of oil moves up and down with the strength of the economy like bond yields. When the economy grows, the demand for oil increases and prices tend to go up. Oil is actually in a fairly sweet spot right now, but it shot up 3.7% yesterday, and while it looks fine now, the recent quick spike higher is both encouraging news for the economy, but concerning for gas prices. That's the short-term outlook.
In the longer-term view it actually looks rather toppy, unless that support holds and it takes another trip to the top of that long trading channel. If we do start seeing oil below $70 I would be concerned for the economy, but instead it hit $80 at one point yesterday, so even though it may mean higher gas prices, it's moving in the right direction as far as the economy goes.
Another good sign of economic conditions is the direction of the Dow Transportation Index, which was down again yesterday and that's another day pulling back from the plethora of overhead resistance. This is a concern.
The small caps of the Russell 2000 also failed to hold up coming into the new week. I do see a possible small bull flag on the chart, but otherwise it could be topping out after the relief rally.
We will get the PPI report this morning, and the key CPI report tomorrow. The Fed is probably more concerned about inflation than anyone, and they control the interest rates so it does remain important, but the weekly jobless claims numbers on Thursday may be more of a market movers as investors focus on the strength of the economy.
The S&P 500 (C-fund) was flat yesterday and the spinning top formation was a sign of indecision, and perhaps a turning point. It's not that persuasive but it does come near a confluence of resistance where it could run into some trouble. Taking a breather here after the nearly 250-point rebound of the lows in a week, wouldn't be the worst thing that could happen.
The DWCPF (S-fund) lagged badly yesterday as big tech stole the spotlight back from the rotation trade. The chart has some issues and getting over the 2020 area looks like the big test.
The EFA (I-fund) was down slightly and it too has come a long way as it makes its way back toward some potential resistance.
BND (F-fund) led the TSP funds yesterday as yields pulled back. It spent a day below that old resistance line, which may help as support for a little while. The positive outside reversal day yesterday suggests it could have more upside left.
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.html
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.
