Strong earnings out of the Magnificent 7, and a much stronger than expected jobs report, gave us a very mixed day in the TSP funds on Friday. The S&P 500 (C-fund) is heavily weighted in big tech stocks and it benefited, along with the Dow, and of course the Nasdaq, with those Mag 7 earnings on Friday. But the unusually strong jobs report sent yields and the dollar up sharply, and that put a lot pressure on small caps (S-fund), the I-fund, and bonds (F-fund) on Friday.
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The January jobs report blew away the estimates of +175,000 jobs, coming in with a gain of 353,000. After revising 10 of the previous 11 jobs reports lower, they actually revised the December and November reports higher in this report adding an additional 126,000 jobs.
After falling sharply for four straight days, the 10-year Treasury Yield spiked higher after Friday's job report was released, pushing the yield back above 4% after a brief stint below it. It's below some key resistance so well have to see if this reversal can hold or not.
The dollar also spiked higher and, along with that spike in yields, that combination created very poor day for the I-fund and F-fund, while the S-fund was just slightly better than flat. The C-fund was less impacted by yields and the dollar because of the strength in big tech, so the charts had very different reactions.
In C, S, I, F fund order...
Meta was up a whopping 20% on Friday, dwarfing the impressive nearly 8% gain in Amazon. That was the good news for large cap indices but this chart shows that fading a big move after an earnings triggered gap up (green arrow) or gap down (red) has been a more effective strategy than chasing the move, so perhaps we will see some profit taking in these stocks and large cap indices in the coming days? Should that happen, the question would be, will the S and I-funds benefit with a rotation into the smaller cap indices?
Market breadth (advancing stocks vs. declining) on Friday was quite negative despite the big gains in the large cap indices. This has some bearish historical implications - that is when breadth is very negative and the S&P 500 is up 1% or more on a day.
The Fed decreased their balance sheet by $37 billion last week. In recent weeks I mentioned that increasing the balance sheet lately has led to a least one week of gains, if not more, but here it is falling sharply last week. That could strengthen the dollar and put more pressure on stock prices.
With the Fed meeting out of the way, the monthly jobs report behind up, and six of the Magnificent 7 earnings reports released, and the final one (Nvidia) not out for another 2+ weeks, we may have a pocket of a relatively tame news cycle. Can stocks continue to climb a wall of worry or will we see some digesting of the recent gains?
The S&P 500 (C-fund) chart couldn't look any stronger although it is clearly stretched and could pull back at any time, but for now that 20-day EMA is the trending bullish support area, and the trend is the bulls' friend. Whether the rest of the market can keep up with this big tech driven index is questionable.
DWCPF (S-fund) continues to churn sideways and it looked like it wanted to break out from that bullish flag last week, but a couple of headlines and yield spikes knocked it down again. There's support just under 1900, and then again at 1882 where the 50-day EMA is sitting. The bull case could stay intact even if this does decide to pull back to the bottom that red flag again near 1850.
The EFA (I-fund) took one on the chin after the jobs report sent the dollar soaring higher. It's just off recent highs and still above its 20-day EMA so it's hard to get too bearish here, although the break below the rising red support line is an attention grabber.
BND (bonds, F-fund) gapped down on the strong economic data that sent yields sharply higher. Perhaps this is just a test of the top of the bull flag after last week's breakout. That's health technical action as long as it doesn't start failing at the support lines.
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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The January jobs report blew away the estimates of +175,000 jobs, coming in with a gain of 353,000. After revising 10 of the previous 11 jobs reports lower, they actually revised the December and November reports higher in this report adding an additional 126,000 jobs.
After falling sharply for four straight days, the 10-year Treasury Yield spiked higher after Friday's job report was released, pushing the yield back above 4% after a brief stint below it. It's below some key resistance so well have to see if this reversal can hold or not.
The dollar also spiked higher and, along with that spike in yields, that combination created very poor day for the I-fund and F-fund, while the S-fund was just slightly better than flat. The C-fund was less impacted by yields and the dollar because of the strength in big tech, so the charts had very different reactions.
In C, S, I, F fund order...
Meta was up a whopping 20% on Friday, dwarfing the impressive nearly 8% gain in Amazon. That was the good news for large cap indices but this chart shows that fading a big move after an earnings triggered gap up (green arrow) or gap down (red) has been a more effective strategy than chasing the move, so perhaps we will see some profit taking in these stocks and large cap indices in the coming days? Should that happen, the question would be, will the S and I-funds benefit with a rotation into the smaller cap indices?
Market breadth (advancing stocks vs. declining) on Friday was quite negative despite the big gains in the large cap indices. This has some bearish historical implications - that is when breadth is very negative and the S&P 500 is up 1% or more on a day.
The Fed decreased their balance sheet by $37 billion last week. In recent weeks I mentioned that increasing the balance sheet lately has led to a least one week of gains, if not more, but here it is falling sharply last week. That could strengthen the dollar and put more pressure on stock prices.
With the Fed meeting out of the way, the monthly jobs report behind up, and six of the Magnificent 7 earnings reports released, and the final one (Nvidia) not out for another 2+ weeks, we may have a pocket of a relatively tame news cycle. Can stocks continue to climb a wall of worry or will we see some digesting of the recent gains?
The S&P 500 (C-fund) chart couldn't look any stronger although it is clearly stretched and could pull back at any time, but for now that 20-day EMA is the trending bullish support area, and the trend is the bulls' friend. Whether the rest of the market can keep up with this big tech driven index is questionable.
DWCPF (S-fund) continues to churn sideways and it looked like it wanted to break out from that bullish flag last week, but a couple of headlines and yield spikes knocked it down again. There's support just under 1900, and then again at 1882 where the 50-day EMA is sitting. The bull case could stay intact even if this does decide to pull back to the bottom that red flag again near 1850.
The EFA (I-fund) took one on the chin after the jobs report sent the dollar soaring higher. It's just off recent highs and still above its 20-day EMA so it's hard to get too bearish here, although the break below the rising red support line is an attention grabber.
BND (bonds, F-fund) gapped down on the strong economic data that sent yields sharply higher. Perhaps this is just a test of the top of the bull flag after last week's breakout. That's health technical action as long as it doesn't start failing at the support lines.
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.
