Stocks rallied on Friday although there wasn't much conviction going into the close as the indices spent the final three hours of trading sliding off their highs of the day. It was another very interest week for the stock market in general as the S&P 500 (C-fund) finished strong with a 1.1% gain but still experiences a 0.82% loss for the week, while the recently revitalized small caps (S-find) was up 2% for the week after Friday's 1.6% gain. Bonds are also doing well as only the S-fund is beating the F-fund in July with just a few days of trading left in the month.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 311, align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The PCE prices data came in inline with estimates which was good news and the market got by another inflation test, opening the door to Friday's rally in stocks and bonds.
The market is eagerly anticipating an interest rate cut at the Fed's September meeting, which the PCE Report did not change, but we do have an FOMC meeting this week as well, and while most are not expecting any fireworks at this meeting, the Fed has a way of stirring up volatility, but typically bullish action, especially if they're in a loosening cycle.
The bond market has certainly been anticipating a rate cut as the yield on the 10-year Treasury is down about 0.50% from the April highs. The trend has been down ever since, and the current head and shoulders pattern (H&S) may be indicating even lower yields in the coming weeks. The bad news is, yields may be falling because of weakening economic conditions, although the evidence of that is only slowly developing.
The dollar has been rallying but only enough to create what looks like a possible bear flag, which would indicate a weaker dollar if that resistance continues to hold. On the other hand we are just entering a strong seasonal period for the dollar so perhaps that is not a bear flag, but rather a "V" bottom, which could cause some problems for stocks. A decline in the dollar would indicate a weaker economy, but a weak dollar could bolsters prices, at least in the short-term, and it's related to potential rate cuts.
The weekly chart of the C and S-funds show two different stories, especially in the last three weeks. Smaller companies are more negatively impacted by a weaker economy than large caps, but they also benefit more from lower interest rates. If the economy can continue to hold firm while rates are falling, it makes perfect sense why the small caps would outperform. But any change in the economy, like a poor jobs report this Friday, could change the sentiment in small caps.
The Dow Transportation Index, always considered one of the key market leaders, broke out of a downtrend on Friday and is back above key resistance. This is actually a positive sign for the economy, so we'll just keep collecting the clues and keep score.
The price of oil has been falling sharply since the peak earlier this month. While this is a sign of potential economic issues, it also frees up consumer cash and also helps companies lower costs, so the stock market likes this sub-80 price.
This week will be busy with four Mag 7 companies reporting earnings: Microsoft reports on the 30th. META on the 31st, and Apple and Amazon on August 1. There's an FOMC meeting on Tuesday and Wednesday. No interest rate cut is expected at this meeting but should get clues about their September meeting where the current odds of at least a 0.25% cut are now 100% (99.7% to be precise.) We also get the jobs report on Friday, plus a few other important economic reports.
The TSP announced a new L-fund on Friday - or at least I had not heard about it until Friday when I had to scramble to incorporate it into our AutoTracker after one of our members told me about it. (Thanks quabit!) It's not really for me since I don't recommend "trading" or timing the the L-funds. That's what the 5 main funds are for
but I'm particularly uninterested in this fund this year since it is very light on the S-fund. It's call the L 2070 Fund and it's geared toward younger folks who may want to set it, and forget it. You can read more about it here. Here's the current allocation breakdown of the new L 2070 Fund.
The S&P 500 (C-fund) rallied nicely on Friday, gaining more than 1%, but you can see that the index remains within the walls of that new descending trading channel. We saw small caps and the Transportation Index break above recent resistance, so that's the job of the large cap this week - to break the downtrend. It's a busy week with plenty of catalysts, and key support between 5375 and 5350 must hold or much lower numbers come into the picture as a possibility. Earnings from Microsoft, Apple, Amazon, and META have their job to do this week. And that's without regard to what the Fed might say on Wednesday, which is obviously equally important.
DWCPF (S-fund) has been doing well and Friday's breakout above the bull flag is a good start to a potential new leg higher. A failure here would be concerning as the bottom of that flag, if tested again, is 3.5% lower than Friday's close.
The EFA (I-fund) had a big day on Friday but like the S&P 500, it is still below some key resistance. The positive reversal off the 100-day EMA looks credible, and it is back above its 50-day EMA, but that descending resistance needs to break soon or a test of the recent lows would be next.
BND (bonds / F-fund) broke out like the small caps and the Transportation Index charts and this positive trend is working on many time frames. The large open gap (blue) was filled and now the Fed and / or the jobs report is possibly the only obstacle in the way before this tries to make new highs.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 311, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The PCE prices data came in inline with estimates which was good news and the market got by another inflation test, opening the door to Friday's rally in stocks and bonds.
The market is eagerly anticipating an interest rate cut at the Fed's September meeting, which the PCE Report did not change, but we do have an FOMC meeting this week as well, and while most are not expecting any fireworks at this meeting, the Fed has a way of stirring up volatility, but typically bullish action, especially if they're in a loosening cycle.
The bond market has certainly been anticipating a rate cut as the yield on the 10-year Treasury is down about 0.50% from the April highs. The trend has been down ever since, and the current head and shoulders pattern (H&S) may be indicating even lower yields in the coming weeks. The bad news is, yields may be falling because of weakening economic conditions, although the evidence of that is only slowly developing.
The dollar has been rallying but only enough to create what looks like a possible bear flag, which would indicate a weaker dollar if that resistance continues to hold. On the other hand we are just entering a strong seasonal period for the dollar so perhaps that is not a bear flag, but rather a "V" bottom, which could cause some problems for stocks. A decline in the dollar would indicate a weaker economy, but a weak dollar could bolsters prices, at least in the short-term, and it's related to potential rate cuts.
The weekly chart of the C and S-funds show two different stories, especially in the last three weeks. Smaller companies are more negatively impacted by a weaker economy than large caps, but they also benefit more from lower interest rates. If the economy can continue to hold firm while rates are falling, it makes perfect sense why the small caps would outperform. But any change in the economy, like a poor jobs report this Friday, could change the sentiment in small caps.
The Dow Transportation Index, always considered one of the key market leaders, broke out of a downtrend on Friday and is back above key resistance. This is actually a positive sign for the economy, so we'll just keep collecting the clues and keep score.
The price of oil has been falling sharply since the peak earlier this month. While this is a sign of potential economic issues, it also frees up consumer cash and also helps companies lower costs, so the stock market likes this sub-80 price.
This week will be busy with four Mag 7 companies reporting earnings: Microsoft reports on the 30th. META on the 31st, and Apple and Amazon on August 1. There's an FOMC meeting on Tuesday and Wednesday. No interest rate cut is expected at this meeting but should get clues about their September meeting where the current odds of at least a 0.25% cut are now 100% (99.7% to be precise.) We also get the jobs report on Friday, plus a few other important economic reports.
The TSP announced a new L-fund on Friday - or at least I had not heard about it until Friday when I had to scramble to incorporate it into our AutoTracker after one of our members told me about it. (Thanks quabit!) It's not really for me since I don't recommend "trading" or timing the the L-funds. That's what the 5 main funds are for
but I'm particularly uninterested in this fund this year since it is very light on the S-fund. It's call the L 2070 Fund and it's geared toward younger folks who may want to set it, and forget it. You can read more about it here. Here's the current allocation breakdown of the new L 2070 Fund.
The S&P 500 (C-fund) rallied nicely on Friday, gaining more than 1%, but you can see that the index remains within the walls of that new descending trading channel. We saw small caps and the Transportation Index break above recent resistance, so that's the job of the large cap this week - to break the downtrend. It's a busy week with plenty of catalysts, and key support between 5375 and 5350 must hold or much lower numbers come into the picture as a possibility. Earnings from Microsoft, Apple, Amazon, and META have their job to do this week. And that's without regard to what the Fed might say on Wednesday, which is obviously equally important.
DWCPF (S-fund) has been doing well and Friday's breakout above the bull flag is a good start to a potential new leg higher. A failure here would be concerning as the bottom of that flag, if tested again, is 3.5% lower than Friday's close.
The EFA (I-fund) had a big day on Friday but like the S&P 500, it is still below some key resistance. The positive reversal off the 100-day EMA looks credible, and it is back above its 50-day EMA, but that descending resistance needs to break soon or a test of the recent lows would be next.
BND (bonds / F-fund) broke out like the small caps and the Transportation Index charts and this positive trend is working on many time frames. The large open gap (blue) was filled and now the Fed and / or the jobs report is possibly the only obstacle in the way before this tries to make new highs.
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.
