Stocks sold off again on Thursday following another rally in bond yields and what is being interpreted as hawkish Fed as they have not thrown in the towel yet on more potential interest rate hikes. The Dow dropped 371-points and we saw losses well over 1% in many of the indices. Bonds and the F-fund were down on the rally in yields, and the market will just have to fight its way out of this seasonal weakness.
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The good news with yields is, the 2-year / 10-year yield curve is getting less inverted, or steepening. The bad news is, stocks don't tend to do well while that is happening.
Interestingly, the probability of a 0.25% rate hike at the November meeting did go up from 29% to 31% yesterday, but a week ago it was 36%, and a month ago it was 38%. Perhaps this is because inflation may be taking a back seat to the concern over a recession again?
After probably doing a little too much gloating about missing all of the 2022 bear market losses, 2023 has been very rough on me and once again the market likes to keep me humble.
I like to blame the two transaction limit per month when I can :^) but we all have that disadvantage and we have to make of it what we can. I considered selling the rally last week but that would have kept me out of stocks until October and I opted to take my chances that any weakness this week might be temporary. Now I'm feeling a little regret although some short-term relief is probably due soon.
Investors came into this week with concerns that inflation may be remaining stubborn and stocks have been dicey since the end of July so a case could have been made that a negative reaction to the Fed was getting priced in already. As TSP participant, if you wanted to hear what the Fed had to say before making a decision, any transfer done on Wednesday morning would have had to been done hours before the Fed gave their policy statement and press conference, so you were basically guessing.
Then, whether you liked or didn't like what the Fed actually said on Wednesday afternoon, you could have reacted and made a transfer afterward, but that was too late to get out (or in) stocks for Thursday since any IFT made after noon ET on Wednesday through noon on Thursday, does not change your account until Friday's market action. You were stuck.
So, our hands are fairly tied and that's because the TSP really doesn't want us messing with our allocations. They want us in the L-funds and forgetting about it until we retire, with perhaps a few tweaks as we get older and closer to retirement, while taking some modest fees along the way. So, for better or worse, they make it tough on us to do anything else as far as managing our account goes.
If I had timed this better I may be singing a different tune, but I am a little frustrated with myself because I knew this week, the week after options expiration week in September, was a poor one historically for the stock market, and I've been burned so far.
The market is doing what it has done forever, that is move up and down with small and large trends within the moves and we get reminded once in a while that it is not always an easy game to play.
Yields popped higher yesterday, continuing to feed on the hawkish Fed rhetoric on Wednesday. Inflation is a concern, and since government spending doesn't seem to ever slow down, this could be a sticky problem for a while. Higher for longer, seems to be the mantra for inflation and interest rates, and we have to adjust accordingly.
We went many, many years with interest rates near 0% and many investors did not adjust to that making the stock market returns over the last decade much more buoyant that in a typical cycle, and now we have to make the adjustment back to a market that is dealing with more "normal" rates and that could mean more volatility, and smaller returns than we've been used to.
Here is that spike up in yields yesterday. I don't know why this didn't happen on Wednesday after Powell's hawkish press conference, but here is the 10-year Treasury Yield spiking up to new highs for the year.
That move gave BND (Bonds / F-fund) a thumping. Bond sentiment has gotten so bearish that a relief rally would seem almost inevitable, even it it just filled that red open gap in the short-term.
We saw some pockets of strength early on Thursday in the Transports and even Apple was positive for a while, but by the close investors were taking almost everything behind the wood shed for a beating.
T'is the season for selling so we'll just have to see how long the bears can keep this up as the indicators get more oversold, and investors start getting excessively bearish. These tend to set up at least least a relief rally, and it may not be until we get deeper into October and the 4th quarter that seasonality will stop being a hindrance and instead become a positive catalyst.
The S&P 500 (C-fund) broke down yesterday. Whether this is one of those fake outs before reversing breaking out that we talked about as being a tendency for these pennant formations, but that was a pretty severe decline and didn't look very fake. It is now down testing the neckline of its head and shoulders pattern.
Unfortunately the H&S on the small caps chart below broke down so that neckline didn't hold, and that makes the chart above vulnerable as well. There's not a lot of good things happening here. The best we can say it that its gotten so bad that it may be due for relief, and there is an open gap at Wednesday's lows that should eventually get filled.
DWCPF (S-fund) also gapped lower. This one has been looking weaker than the S&P 500 for a while and that open gap near 1670 was always a thorn in the side of this chart, even though I was still hoping it could hold at the neckline of the head and shoulders pattern. It didn't.
The EFA (I-fund) gapped down and is now dealing with its 200-day EMA again. There's an open gap above near 71 and support at 69.50, but if that doesn't hold, the new trend is down and not telling a very good story.
Thanks so much for reading! Have a great weekend!
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.
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[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
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[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The good news with yields is, the 2-year / 10-year yield curve is getting less inverted, or steepening. The bad news is, stocks don't tend to do well while that is happening.
Interestingly, the probability of a 0.25% rate hike at the November meeting did go up from 29% to 31% yesterday, but a week ago it was 36%, and a month ago it was 38%. Perhaps this is because inflation may be taking a back seat to the concern over a recession again?
After probably doing a little too much gloating about missing all of the 2022 bear market losses, 2023 has been very rough on me and once again the market likes to keep me humble.
I like to blame the two transaction limit per month when I can :^) but we all have that disadvantage and we have to make of it what we can. I considered selling the rally last week but that would have kept me out of stocks until October and I opted to take my chances that any weakness this week might be temporary. Now I'm feeling a little regret although some short-term relief is probably due soon.
Investors came into this week with concerns that inflation may be remaining stubborn and stocks have been dicey since the end of July so a case could have been made that a negative reaction to the Fed was getting priced in already. As TSP participant, if you wanted to hear what the Fed had to say before making a decision, any transfer done on Wednesday morning would have had to been done hours before the Fed gave their policy statement and press conference, so you were basically guessing.
Then, whether you liked or didn't like what the Fed actually said on Wednesday afternoon, you could have reacted and made a transfer afterward, but that was too late to get out (or in) stocks for Thursday since any IFT made after noon ET on Wednesday through noon on Thursday, does not change your account until Friday's market action. You were stuck.
So, our hands are fairly tied and that's because the TSP really doesn't want us messing with our allocations. They want us in the L-funds and forgetting about it until we retire, with perhaps a few tweaks as we get older and closer to retirement, while taking some modest fees along the way. So, for better or worse, they make it tough on us to do anything else as far as managing our account goes.
If I had timed this better I may be singing a different tune, but I am a little frustrated with myself because I knew this week, the week after options expiration week in September, was a poor one historically for the stock market, and I've been burned so far.
The market is doing what it has done forever, that is move up and down with small and large trends within the moves and we get reminded once in a while that it is not always an easy game to play.
Yields popped higher yesterday, continuing to feed on the hawkish Fed rhetoric on Wednesday. Inflation is a concern, and since government spending doesn't seem to ever slow down, this could be a sticky problem for a while. Higher for longer, seems to be the mantra for inflation and interest rates, and we have to adjust accordingly.
We went many, many years with interest rates near 0% and many investors did not adjust to that making the stock market returns over the last decade much more buoyant that in a typical cycle, and now we have to make the adjustment back to a market that is dealing with more "normal" rates and that could mean more volatility, and smaller returns than we've been used to.
Here is that spike up in yields yesterday. I don't know why this didn't happen on Wednesday after Powell's hawkish press conference, but here is the 10-year Treasury Yield spiking up to new highs for the year.
That move gave BND (Bonds / F-fund) a thumping. Bond sentiment has gotten so bearish that a relief rally would seem almost inevitable, even it it just filled that red open gap in the short-term.
We saw some pockets of strength early on Thursday in the Transports and even Apple was positive for a while, but by the close investors were taking almost everything behind the wood shed for a beating.
T'is the season for selling so we'll just have to see how long the bears can keep this up as the indicators get more oversold, and investors start getting excessively bearish. These tend to set up at least least a relief rally, and it may not be until we get deeper into October and the 4th quarter that seasonality will stop being a hindrance and instead become a positive catalyst.
The S&P 500 (C-fund) broke down yesterday. Whether this is one of those fake outs before reversing breaking out that we talked about as being a tendency for these pennant formations, but that was a pretty severe decline and didn't look very fake. It is now down testing the neckline of its head and shoulders pattern.
Unfortunately the H&S on the small caps chart below broke down so that neckline didn't hold, and that makes the chart above vulnerable as well. There's not a lot of good things happening here. The best we can say it that its gotten so bad that it may be due for relief, and there is an open gap at Wednesday's lows that should eventually get filled.
DWCPF (S-fund) also gapped lower. This one has been looking weaker than the S&P 500 for a while and that open gap near 1670 was always a thorn in the side of this chart, even though I was still hoping it could hold at the neckline of the head and shoulders pattern. It didn't.
The EFA (I-fund) gapped down and is now dealing with its 200-day EMA again. There's an open gap above near 71 and support at 69.50, but if that doesn't hold, the new trend is down and not telling a very good story.
Thanks so much for reading! Have a great weekend!
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.
