A string of positive economic data cleared a path for the bulls this week. The C-fund gave its investors the best TSP return of the week with a gain of 3.99%, its best week of the year. This rally was a hefty rebound from a sell-off that plagued the first days of August. Despite these exciting returns, the contrasting swings in the market should have investors wary of more turbulence ahead.
Here are the weekly, monthly, and annual TSP fund returns for the week ending August 9:
The S and I-funds were also up more than 3% for the week.
Market Outlook
The market is sensitive to incoming data right now. That works out for stock investors when that data aligns with a durable economy and labor market. That is what fed this week’s rally. The Producer Price Index, Consumer Price Index, Retail Sales, and Initial Jobless Claims all came in line with or better than expectations. These data were not just in good standing but were a change in the recession and hard landing narrative that took over the market after the July Jobs Report exposed an unexpected weakness in the economy on August 2nd.
S&P 500 (C-fund) 3-Month Chart:
But investors should not get too comfortable. There is still plenty of uncertainty that could unwind the market again. The focus now is on how the Federal Reserve will deal with these conflicting data in the September Federal Open Market Committee (FOMC) meeting. The market feels certain that the FOMC will cut the Fed Fund rate, but by how much has been a volatile bet.
Right now, the market projects a 75% probability the FOMC will cut rates by a conservative 0.25%, and a 25% probability of the more aggressive 0.50% rate cut. Only a week prior, and before this week’s economic data, the market favored a 0.50% rate cut over 0.25%.
Next Week
Next week will be Fed-focused. The market will get the Fed Minutes on Wednesday which will give them a more detailed look at how the FOMC felt during their July meeting. However, a lot has changed in the market and the general economic outlook since the July meeting, so these minutes could have already lost their relevance. The market has suddenly increased its enthusiasm for the Initial Jobless Claims published every Thursday. They are looking for signs of layoffs among U.S. companies.
The main event will be Fed Chairman Jerome Powell’s speech at the Jackson Hole Economic Policy Symposium on Friday. Powell is arguably the most influential person over the value of the U.S. dollar and interest rate market. How and what he communicates about his economic outlook has serious market-moving potential.
The market action leading up to Friday will depend on whether investors can keep this week's momentum or if the lack of catalysts will provoke profit taking and pull prices down.
Best Return of the Week:
KCLARK’s 4.2% gain this week was the best among the TSP Talk community and was the only return to outperform the C-fund (+3.99%). KCLARK’s jump back into stocks (60% C and 40% S) on Monday was responsible for their outperformance. Coming from a 40% G-fund and 60% F-fund allocation, they missed the S-fund’s 0.78% loss on Monday and came out of Monday with a 0.14% gain while those holding 100% C-fund began the week with a 0.02% gain.
We saw KCLARK make this move on Monday's Last Look Report.
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The TSP Talk AutoTracker Average Allocation (non-premium):
After two weeks of exiting stock funds, the C-fund took in most of this week's IFTs. The C-fund did outperform the other TSP funds for the week, but I am still surprised to see the S-fund drop in allocations after putting up more than 2% of gains on Thursday.
Members are favoring the large cap fund which has shown consistency over the S-fund and was resistant to losses this week.
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Thomas Crowley
(TommyIV)
www.tsptalk.com
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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.
