Friday was the final day of the 2nd quarter and that triggers some window dressing from money managers and the action helped cause some head scratching by the end of the day. There was a nasty negative outside reversal day on the S&P 500, but small caps and the I-fund closed strong. Bond yields were up on weak inflation data, sending the F-fund lower.
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It was an index rebalancing day, as well as a pension allocation rebalancing day which was why trading volume was so high and why there was a lot of whipping around in the final minutes of trading. Since many funds are required to hold a certain percentage of stocks, bonds, or cash, with the S&P 500 greatly outperforming small caps, the I-fund, and bonds in the 2nd quarter, fund managers had to sell some over-weighted large caps to increase the percentage of the lesser performing stocks and funds.
You can see the action in that last 30 minutes of trading in the three TSP stock funds: The C-fund closed near its lows, while the S and I-funds rallied sharply.
The action in the 10-year Treasury Yield was also a little odd given the favorable inflation data that we got from the PCE Prices report. Was it end of the quarter shenanigans, rebalancing, a fake out to retest the 50 and 200-day EMA's one more time, or is something up that we don't yet see? Normally if economic data is weak or inflation numbers come down, we'd expect to see weakness in yields. It remains in a bearish looking formation so we'll have to see how bonds start the new month.
The dollar also remains strong although it was flat on Friday.
The Chicago PMI [manufacturing] report, which shocked the world last month with a recession-like reading, bounced back in the most recent report. It came in at 47, which is still in contraction (anything below 50) but well off the 35 disastrous level we saw a month ago.
Here's a closer look. I find it a little suspicious that it bounced back so much after 6 straight declines and the worst one month reading since Covid and the financial crisis. What has changed in the last 30 days?
The action in the S&P 500 (C-fund) on Friday is concerning. We've been seeing a series of negative outside reversal days. They are normally on the rare side, but we saw one in April, another in Ma,y and arguably three in June. It tends to lead to weaker action going forward, as opposed to the positive outside reversal day on May 31st, which preceded a major rally.
I'll bring up the one from July of 2023 again since it signaled a major market shift moving into August last year.
As I showed above, small caps and the S-fund (DWCPF) finished strong on Friday and was able to avoid a negative reversal day. Instead it closed above its 50-day EMA for only the second time in a month. It looks like some kind of rounded bottom, but I suppose it could be part of a bearish flag. The descending resistance off the May high may tell us more if it gets tested this week.
The Dow Transportation Index also diverted from the S&P 500 weakness as it held onto a 1% gain on Friday. It broke above resistance and some major moving averages so this looks pretty good if it can hold for a few days.
That's a lot of diverging action going on and it keeps the question alive about whether small caps and the I-fund can do well if the large caps (S&P 500 and Nasdaq) finally pullback from June's big rally?
Here is the S&P 500 seasonality chart for July. July 1st is one of the best performing days of the year historically, and July is the best performing month of the "sell in May and go away", 6-month period. August and September are the clunker months of the year.
Chart provided courtesy of www.sentimentrader.com
One more tidbit - the Fed balance sheet was reduced another $50+ billion in June and that's now about a half trillion dollars in 2024. That's monetary tightening and it has probably had a positive impact on inflation, but it is also likely drying up liquidity in the market.
We have the 4h of July holiday on Thursday and just a half day of trading on Wednesday so it should be a week of light trading. We will get the important monthly jobs report on Friday, and with many folks off on a long holiday weekend, the light volume trading could cause the indices to get pushed around more easily by big money traders. I will probably post a brief commentary on Friday.
The June AutoTracker winners have been posted and it was tough to beat that C-fund. Just two did it. Here are the winners and here are the monthly and annual (non-premium members) standings through June. Track your return on the AutoTracker - it's free!
The charts of the S&P 500 (C-fund) and DWCPF (S-fund) were posted up top.
The EFA (I-fund) was up slightly on Friday, getting spared from the negative reversal of the large caps. But the bear flag is still intact and this doesn't look great. Next move would be to get back above that 50-day EMA.
BND (bonds / F-fund) may have been the igniter of the negative reversal day on Friday and yields popped for no apparent reason, although I have been speculating about the allocation reshuffling from money managers in the final trading day of the quarter. We have been talking about those large open gaps (red) that may need to get filled and the first one is now abut half filled.
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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It was an index rebalancing day, as well as a pension allocation rebalancing day which was why trading volume was so high and why there was a lot of whipping around in the final minutes of trading. Since many funds are required to hold a certain percentage of stocks, bonds, or cash, with the S&P 500 greatly outperforming small caps, the I-fund, and bonds in the 2nd quarter, fund managers had to sell some over-weighted large caps to increase the percentage of the lesser performing stocks and funds.
You can see the action in that last 30 minutes of trading in the three TSP stock funds: The C-fund closed near its lows, while the S and I-funds rallied sharply.
The action in the 10-year Treasury Yield was also a little odd given the favorable inflation data that we got from the PCE Prices report. Was it end of the quarter shenanigans, rebalancing, a fake out to retest the 50 and 200-day EMA's one more time, or is something up that we don't yet see? Normally if economic data is weak or inflation numbers come down, we'd expect to see weakness in yields. It remains in a bearish looking formation so we'll have to see how bonds start the new month.
The dollar also remains strong although it was flat on Friday.
The Chicago PMI [manufacturing] report, which shocked the world last month with a recession-like reading, bounced back in the most recent report. It came in at 47, which is still in contraction (anything below 50) but well off the 35 disastrous level we saw a month ago.
Here's a closer look. I find it a little suspicious that it bounced back so much after 6 straight declines and the worst one month reading since Covid and the financial crisis. What has changed in the last 30 days?
The action in the S&P 500 (C-fund) on Friday is concerning. We've been seeing a series of negative outside reversal days. They are normally on the rare side, but we saw one in April, another in Ma,y and arguably three in June. It tends to lead to weaker action going forward, as opposed to the positive outside reversal day on May 31st, which preceded a major rally.
I'll bring up the one from July of 2023 again since it signaled a major market shift moving into August last year.
As I showed above, small caps and the S-fund (DWCPF) finished strong on Friday and was able to avoid a negative reversal day. Instead it closed above its 50-day EMA for only the second time in a month. It looks like some kind of rounded bottom, but I suppose it could be part of a bearish flag. The descending resistance off the May high may tell us more if it gets tested this week.
The Dow Transportation Index also diverted from the S&P 500 weakness as it held onto a 1% gain on Friday. It broke above resistance and some major moving averages so this looks pretty good if it can hold for a few days.
That's a lot of diverging action going on and it keeps the question alive about whether small caps and the I-fund can do well if the large caps (S&P 500 and Nasdaq) finally pullback from June's big rally?
Here is the S&P 500 seasonality chart for July. July 1st is one of the best performing days of the year historically, and July is the best performing month of the "sell in May and go away", 6-month period. August and September are the clunker months of the year.
Chart provided courtesy of www.sentimentrader.com
One more tidbit - the Fed balance sheet was reduced another $50+ billion in June and that's now about a half trillion dollars in 2024. That's monetary tightening and it has probably had a positive impact on inflation, but it is also likely drying up liquidity in the market.
We have the 4h of July holiday on Thursday and just a half day of trading on Wednesday so it should be a week of light trading. We will get the important monthly jobs report on Friday, and with many folks off on a long holiday weekend, the light volume trading could cause the indices to get pushed around more easily by big money traders. I will probably post a brief commentary on Friday.
The June AutoTracker winners have been posted and it was tough to beat that C-fund. Just two did it. Here are the winners and here are the monthly and annual (non-premium members) standings through June. Track your return on the AutoTracker - it's free!
The charts of the S&P 500 (C-fund) and DWCPF (S-fund) were posted up top.
The EFA (I-fund) was up slightly on Friday, getting spared from the negative reversal of the large caps. But the bear flag is still intact and this doesn't look great. Next move would be to get back above that 50-day EMA.
BND (bonds / F-fund) may have been the igniter of the negative reversal day on Friday and yields popped for no apparent reason, although I have been speculating about the allocation reshuffling from money managers in the final trading day of the quarter. We have been talking about those large open gaps (red) that may need to get filled and the first one is now abut half filled.
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.
