Friday was another choppy day for stocks after a week of favorable economic data as far as inflation and economic growth go. Inflation seems to be well under control, yet the economy is growing much more than most expected. It feels as if it has been a good month for stocks, but only the C-fund is up in January so it has been concentrated strength and the question is whether that will spill over into the smaller, broader indices, or are those small caps the ones that are telling the true story?
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We just got the Q4 2023 GDP report (economic growth) last week and it was well above estimates, and GDPNow just came out with their Q1 2024 estimates and it was +3%. That is a far cry from recessionary numbers and it may explain why yields and the dollar have been moving up instead of down recently.
Normally, if the economy is weakening, the bond market would see lower yields and a we'd get a weaker dollar but that's not what is happening. The talk of a recession in 2024 is fading a little, especially now with these recent GDP numbers, and perhaps the normally reliable inverted yield curve is not foreshadowing a recession as it historically has. But why?
I ran across this data which sort of explains this. Let's just say government spending has been a big factor. Look at the expansion of the US deficit and debt compared to the nominal GDP growth. The government is basically manufacturing growth with debt.
I don't know how this ends because the boy who cried wolf about the insane national debt has been crying for decades, and we just keep rolling along just fine. At some point the bubble will burst, but when? This year? Five years from now? Ten? More? That would be nice to know while we're saving for retirement, don't you think? However, it will more likely be something that unravels very quickly once it starts, and we may not know what hit us until it's too late. So, it's business as usual until then, I guess.
The Federal Reserved increased their balance sheet again last week, albeit by just a few billion this time. I mentioned last week that, since the regional banking crisis in March of 2023, the Fed has been consistently reducing their balance sheet each week with few exceptions. However, each of those exceptions led to stock markets gains during the week they increased it, as well as the following week. And, wouldn't you know it, all of the TSP stock funds were up 1% or more last week.
The market is getting, or remains, quite stretched to the upside - at least the S&P 500 is, so keeping this streak going may be tough. And this week will be crazy busy with most of the Magnificent 7 companies reporting earnings, the Fed's FOMC meeting and decision on interest rates on Wednesday, and the January jobs report on Friday.
The S&P 500 (C-fund) is showing similarities to the 2023 summer peak as it pushes above the top of the long-term trading channel and stretches dangerously above its 200-day moving average. We also have a similar PMO indicator reading to that time where the PMO came off some overbought levels to move below its moving average, then reversed back above it to give the market one last push higher until it peaked at the end of July.
We also have geopolitical events that could impact the markets after three US troops were killed in a drone attack near the Jordan and Syria border. President Biden said the US "will hold all those responsible to account at a time and in a manner of our choosing", so this could escalate.
February hasn't been a great month for stocks over the years. Only August and September have worse average returns over the years but as you can see in the February seasonality chart below, most of the damage seems to come in the second half of the month. So maybe this rally has a few weeks left in it - if you can stand the sound of a fraying rubber band.
Chart provided courtesy of www.sentimentrader.com
Five of the Magnificent 7 companies will be reporting earnings this week, and in between the Fed will deliver their monetary policy on Wednesday. Plus we get the monthly jobs report on Friday so fasten your seatbelts and keep your trays in an upright position.
Like what you're seeing on TSP Talk? We'd sure appreciate it if you told someone else about us. Also, if you haven't done so already, join the Forum and AutoTracker for a more hands on experience. They're free.
The S&P 500 (C-fund) continued to hover above the old broken resistance line but any pullback would more likely look to test 4800. Not that it will, but that is the more meaningful support area. This is a big week for earnings and the Magnificent 7 will have major impact of the S&P 500 and Nasdaq, but it could be very choppy if the results aren't consistent and the market keys off of each individual release.
DWCPF (S-fund) has been moving sideways since the big rally on Monday and although small caps have been lagging, that kind of consolidating after a rally creates a bullish looking flag. They are small bull flags (red) but they are also all part of a larger bull flag (blue) and these have been favorable setups for the S-fund in recent months.
EFA (I-fund) is in a similar situation - not hitting the old highs yet but basing in an area that would suggest a breakout. Of course the heavy dose of news this week could shake everything up, but the chart actually looks pretty good at this time.
BND (bonds, F-fund) looks a lot like the two charts above and that means bonds look bullish, but this chart has been lingering under its 20-day EMA (green) since falling below it a couple of weeks ago. The stronger than expected economic data could weigh on the F-fund if yields continue to trend higher.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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: 338, align: center"] Daily TSP Funds Return
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We just got the Q4 2023 GDP report (economic growth) last week and it was well above estimates, and GDPNow just came out with their Q1 2024 estimates and it was +3%. That is a far cry from recessionary numbers and it may explain why yields and the dollar have been moving up instead of down recently.
Normally, if the economy is weakening, the bond market would see lower yields and a we'd get a weaker dollar but that's not what is happening. The talk of a recession in 2024 is fading a little, especially now with these recent GDP numbers, and perhaps the normally reliable inverted yield curve is not foreshadowing a recession as it historically has. But why?
I ran across this data which sort of explains this. Let's just say government spending has been a big factor. Look at the expansion of the US deficit and debt compared to the nominal GDP growth. The government is basically manufacturing growth with debt.
I don't know how this ends because the boy who cried wolf about the insane national debt has been crying for decades, and we just keep rolling along just fine. At some point the bubble will burst, but when? This year? Five years from now? Ten? More? That would be nice to know while we're saving for retirement, don't you think? However, it will more likely be something that unravels very quickly once it starts, and we may not know what hit us until it's too late. So, it's business as usual until then, I guess.
The Federal Reserved increased their balance sheet again last week, albeit by just a few billion this time. I mentioned last week that, since the regional banking crisis in March of 2023, the Fed has been consistently reducing their balance sheet each week with few exceptions. However, each of those exceptions led to stock markets gains during the week they increased it, as well as the following week. And, wouldn't you know it, all of the TSP stock funds were up 1% or more last week.
The market is getting, or remains, quite stretched to the upside - at least the S&P 500 is, so keeping this streak going may be tough. And this week will be crazy busy with most of the Magnificent 7 companies reporting earnings, the Fed's FOMC meeting and decision on interest rates on Wednesday, and the January jobs report on Friday.
The S&P 500 (C-fund) is showing similarities to the 2023 summer peak as it pushes above the top of the long-term trading channel and stretches dangerously above its 200-day moving average. We also have a similar PMO indicator reading to that time where the PMO came off some overbought levels to move below its moving average, then reversed back above it to give the market one last push higher until it peaked at the end of July.
We also have geopolitical events that could impact the markets after three US troops were killed in a drone attack near the Jordan and Syria border. President Biden said the US "will hold all those responsible to account at a time and in a manner of our choosing", so this could escalate.
February hasn't been a great month for stocks over the years. Only August and September have worse average returns over the years but as you can see in the February seasonality chart below, most of the damage seems to come in the second half of the month. So maybe this rally has a few weeks left in it - if you can stand the sound of a fraying rubber band.
Chart provided courtesy of www.sentimentrader.com
Five of the Magnificent 7 companies will be reporting earnings this week, and in between the Fed will deliver their monetary policy on Wednesday. Plus we get the monthly jobs report on Friday so fasten your seatbelts and keep your trays in an upright position.
Like what you're seeing on TSP Talk? We'd sure appreciate it if you told someone else about us. Also, if you haven't done so already, join the Forum and AutoTracker for a more hands on experience. They're free.
The S&P 500 (C-fund) continued to hover above the old broken resistance line but any pullback would more likely look to test 4800. Not that it will, but that is the more meaningful support area. This is a big week for earnings and the Magnificent 7 will have major impact of the S&P 500 and Nasdaq, but it could be very choppy if the results aren't consistent and the market keys off of each individual release.
DWCPF (S-fund) has been moving sideways since the big rally on Monday and although small caps have been lagging, that kind of consolidating after a rally creates a bullish looking flag. They are small bull flags (red) but they are also all part of a larger bull flag (blue) and these have been favorable setups for the S-fund in recent months.
EFA (I-fund) is in a similar situation - not hitting the old highs yet but basing in an area that would suggest a breakout. Of course the heavy dose of news this week could shake everything up, but the chart actually looks pretty good at this time.
BND (bonds, F-fund) looks a lot like the two charts above and that means bonds look bullish, but this chart has been lingering under its 20-day EMA (green) since falling below it a couple of weeks ago. The stronger than expected economic data could weigh on the F-fund if yields continue to trend higher.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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.
