After opening in positive territory on Thursday, stocks quickly flipped over and made a steady decline into the end of the day, which was seasonally uncharacteristic on the Thursday before the three day Easter weekend. The Dow lost a modest 113-points, 0.33%, but the broader indices took a more serious hit and the Nasdaq took the brunt of it losing over 2% on the day. Retail sales came in lighter than expected, initial jobless claims were worse than expected, but we did see Consumer Sentiment surprisingly beat expectations handily.
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Now the Fed plans to step on the gas pedal and start raising rates more aggressively and we are expected to get a 0.50% and of course now the stock market is concerned and responding accordingly in 2022, because this hawkish action could trigger a recession.
The question is whether the Fed can catch up without crushing the economy ("soft landing") or if a recession is inevitable later this year or in 2023, which is typically the duration between a yield curve inversion between the 2 and 10 year Treasury bonds, which happened a the start of this month, even though it was brief. That meant the yield paid by the 2-year T-note was paying more than the yield on the 10-year T-note.
We have seen many ups and downs in the stock markets in recent years but this one is different because of the spike in inflation and the rise in interest rates. This is not new in history and the Federal Reserve are no dummies. They have studied prior economic problems and certainly have some idea about what to do. The dilemma they face is that doing what they may have to do to curb inflation is to raise those rates and that will impact the economy negatively. I'm repeating myself but that is the issue, and it is what the stock market is grappling with.
At some point I want to discuss the new mutual fund options that the TSP will be offering in a few weeks, but until I get more information I want to broadly touch on the fact that there will most likely be some options that actually work in an inflationary period such as commodities and value stock funds (as opposed to growth.)
The problem with these new funds is that there are all kind of fees involved and trading them may be a bad idea, but holding a percentage of them during this tumultuous period can be a good option. As I said I will talk more about this when I have more information, but to give you an idea of the fees based on what I read on the tsp.gov website:
Mutual fund window
The mutual fund window is designed for TSP participants who are interested in greater investment flexibility. If your account meets certain eligibility criteria, you can choose to access a selection of more than 5,000 mutual funds. As with most mutual funds, this flexibility comes with fees:
Currently the average TSP Fund fee is 0.076%. which is quite low in comparison.
Also, prepare yourself for a two-week period when the TSP will be converting to this new system, and there will be a week or so from May 26 to the first week in June when we will not be able to make transactions at all in our TSP accounts. Sounds a little scary. I'll remind you again and try to get more specific information.
In the interim, we do have to deal with higher interest rates and the inflationary "tax" if you will, as we all pay more for day to day items giving us less money to do what we have been doing for years, which is spend! This has been a consumer driven economy and if the consumer spending dries up, things could get worse.
I see oil started to make a comeback from its recent 4 week pullback with the government trying to help by increasing supply, but of course the price of gasoline has not come down in those 4 weeks. There is a lagging effect so perhaps that is still going to come our way, but don't look now -- the price of oil just broke to the upside of that descending resistance line so it could be a tough summer for gas prices.
On a brighter note, we are seeing some extremes in some indicators including sentiment and sometimes that is enough to flip things around. Last week's AAII Investor sentiment survey came in with less than 16% of resonant saying they were bullish. That is the lowest in a long, long time. I believe I heard it's the lowest since the early 1990's. This may be a good thing because this can be a contrarian indicator..
The theory is - looking it as an extreme - if there were only 10 investors in the whole world, and everyone one of them were very bearish, they probably all sold already so there would be no one left to sell. Then, once one of those people buys, the others will see it the tick up and they'll start joining in because nobody wants to be the last one to buy when stocks start going back up.
But that's just one indicator and obviously the fundamentals of the economic data, interest rates, inflation, etc., are still what they are.
I'd look for a possible ugly "flush" kind of day to scare out any bull stragglers, and eventually a reversal into another relief rally.
The S&P 500 (C-fund) chopped in a range all of last week between the 50 and 200-day averages. We've seen similar type of sideways action in recent months (blue boxes) and all resolved to the upside, but it's possible that this bear market type of activity may not continue to give us a bullish result. There was a big rally ignited in mid-March that peaked in late March and now we've seen a retracement of some of that gain. If the bulls are going to try to keep some control, this may be the area that they have to hold. However, it wouldn't be a surprise to see another spike lower like we saw in both January and February (red circles) to take out some stops, and that could be a good place for people to consider buying if they have cash and fear levels don't get the best of them.
The weekly chart saw a second close below the 40-week simple moving average (green) but maybe more importantly it remains above the 50-week EMA, which has been a key level for the market for a long time. After breaking below both averages in February and March, the late March rally took it back above them but it is again trying to hang onto the 50-week EMA which could be the line in the sand to keep the S&P from testing the 2022 lows again.
DWCPF (S-fund / small caps) is forming one of those patterns that could be a bear flag, or a carving out some kind of low. It may look to fill that overhead open gap near about 1960, right where the 50-day EMA is as well, so this would be an important test if it can get there.
The EFA (I-fund) has a similar formation was a very small gap near 73.30. It could be a bear flag, or a low. Now we can't forget about that big open gap down near 70. This fund needs the dollar to calm down a little for it to gain some traction.
BND (Bonds / F-fund) is just in a bad downtrend that has been tough to break. As long as yields are rising and it remains in this channel, it looks like a fund to avoid.
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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The University of Michigan Consumer Sentiment report came in at 65.7 and expectations were all below 60. The retail sales were below expectations but in the report that excludes auto sales, it was actually a beat.
The Fed has been behind the curve and the bond market has been the one calling the shots as yields have been rising for some time now, and they have only raised their Fed Funds rate once so far. So watching the Fed has been a lagging indicator while bonds have been leading, which is normal, but now many on Wall Street believe that the Fed waited too long to raise rates, thus they have not been able to control the rate of inflation.
The Fed has been behind the curve and the bond market has been the one calling the shots as yields have been rising for some time now, and they have only raised their Fed Funds rate once so far. So watching the Fed has been a lagging indicator while bonds have been leading, which is normal, but now many on Wall Street believe that the Fed waited too long to raise rates, thus they have not been able to control the rate of inflation.
Now the Fed plans to step on the gas pedal and start raising rates more aggressively and we are expected to get a 0.50% and of course now the stock market is concerned and responding accordingly in 2022, because this hawkish action could trigger a recession.
The question is whether the Fed can catch up without crushing the economy ("soft landing") or if a recession is inevitable later this year or in 2023, which is typically the duration between a yield curve inversion between the 2 and 10 year Treasury bonds, which happened a the start of this month, even though it was brief. That meant the yield paid by the 2-year T-note was paying more than the yield on the 10-year T-note.
We have seen many ups and downs in the stock markets in recent years but this one is different because of the spike in inflation and the rise in interest rates. This is not new in history and the Federal Reserve are no dummies. They have studied prior economic problems and certainly have some idea about what to do. The dilemma they face is that doing what they may have to do to curb inflation is to raise those rates and that will impact the economy negatively. I'm repeating myself but that is the issue, and it is what the stock market is grappling with.
At some point I want to discuss the new mutual fund options that the TSP will be offering in a few weeks, but until I get more information I want to broadly touch on the fact that there will most likely be some options that actually work in an inflationary period such as commodities and value stock funds (as opposed to growth.)
The problem with these new funds is that there are all kind of fees involved and trading them may be a bad idea, but holding a percentage of them during this tumultuous period can be a good option. As I said I will talk more about this when I have more information, but to give you an idea of the fees based on what I read on the tsp.gov website:
Mutual fund window
The mutual fund window is designed for TSP participants who are interested in greater investment flexibility. If your account meets certain eligibility criteria, you can choose to access a selection of more than 5,000 mutual funds. As with most mutual funds, this flexibility comes with fees:
- $55 annual fee to ensure that use of the mutual fund window does not indirectly increase TSP administrative expenses for TSP participants who choose not to use the mutual fund window.
- $95 annual maintenance fee
- $28.75 per trade fee
- Other fees and expenses specific to chosen mutual funds
Currently the average TSP Fund fee is 0.076%. which is quite low in comparison.
Also, prepare yourself for a two-week period when the TSP will be converting to this new system, and there will be a week or so from May 26 to the first week in June when we will not be able to make transactions at all in our TSP accounts. Sounds a little scary. I'll remind you again and try to get more specific information.
In the interim, we do have to deal with higher interest rates and the inflationary "tax" if you will, as we all pay more for day to day items giving us less money to do what we have been doing for years, which is spend! This has been a consumer driven economy and if the consumer spending dries up, things could get worse.
I see oil started to make a comeback from its recent 4 week pullback with the government trying to help by increasing supply, but of course the price of gasoline has not come down in those 4 weeks. There is a lagging effect so perhaps that is still going to come our way, but don't look now -- the price of oil just broke to the upside of that descending resistance line so it could be a tough summer for gas prices.
On a brighter note, we are seeing some extremes in some indicators including sentiment and sometimes that is enough to flip things around. Last week's AAII Investor sentiment survey came in with less than 16% of resonant saying they were bullish. That is the lowest in a long, long time. I believe I heard it's the lowest since the early 1990's. This may be a good thing because this can be a contrarian indicator..
The theory is - looking it as an extreme - if there were only 10 investors in the whole world, and everyone one of them were very bearish, they probably all sold already so there would be no one left to sell. Then, once one of those people buys, the others will see it the tick up and they'll start joining in because nobody wants to be the last one to buy when stocks start going back up.
But that's just one indicator and obviously the fundamentals of the economic data, interest rates, inflation, etc., are still what they are.
I'd look for a possible ugly "flush" kind of day to scare out any bull stragglers, and eventually a reversal into another relief rally.
The S&P 500 (C-fund) chopped in a range all of last week between the 50 and 200-day averages. We've seen similar type of sideways action in recent months (blue boxes) and all resolved to the upside, but it's possible that this bear market type of activity may not continue to give us a bullish result. There was a big rally ignited in mid-March that peaked in late March and now we've seen a retracement of some of that gain. If the bulls are going to try to keep some control, this may be the area that they have to hold. However, it wouldn't be a surprise to see another spike lower like we saw in both January and February (red circles) to take out some stops, and that could be a good place for people to consider buying if they have cash and fear levels don't get the best of them.
The weekly chart saw a second close below the 40-week simple moving average (green) but maybe more importantly it remains above the 50-week EMA, which has been a key level for the market for a long time. After breaking below both averages in February and March, the late March rally took it back above them but it is again trying to hang onto the 50-week EMA which could be the line in the sand to keep the S&P from testing the 2022 lows again.
DWCPF (S-fund / small caps) is forming one of those patterns that could be a bear flag, or a carving out some kind of low. It may look to fill that overhead open gap near about 1960, right where the 50-day EMA is as well, so this would be an important test if it can get there.
The EFA (I-fund) has a similar formation was a very small gap near 73.30. It could be a bear flag, or a low. Now we can't forget about that big open gap down near 70. This fund needs the dollar to calm down a little for it to gain some traction.
BND (Bonds / F-fund) is just in a bad downtrend that has been tough to break. As long as yields are rising and it remains in this channel, it looks like a fund to avoid.
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
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
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.
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
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.
