What Happened This Week?
It was a week to be in stocks, and possibly a week to get out of stocks. Inflation data excited investors this week and helped to raise all three TSP stock funds (C,S,I) to new 2023 highs on Thursday.
Something gave the S-fund a running start early in the week. The small-cap driven S-fund was up nearly 3% in the first two days of the week and before the Consumer Price Index was released. But it would not finish the week on top.
The Consumer Price Index (CPI) came in Wednesday morning and consumer prices were up less than expected from the previous June. The year-over-year increase was 3.0%, the lowest reading since April 2021 and the ninth straight drop from the previous month. Stock and bond index charts gapped up at the opening bell. The I-fund outshined with its nearly 2% gain on the day thanks to the CPI's negative effect on the dollar.
The Producer Price Index (PPI) followed on Thursday and further confirmed a drop in inflation. The PPI barley rose from the previous year with its smallest annual increase in nearly three years. Again stocks and bonds moved higher. This time all three TSP stock funds posted their highest price for 2023.
The week ended with some profit taking, but mostly in the S-fund.
Investor Interpretations
These two inflation reports have set a narrative for the bulls that is focused on the Federal Reserve. The bulls are convinced the Fed will end its rate hike campaign after raising rates by 25bps in the July 26 FOMC meeting. The latest inflation data tells the bulls that the Fed has nearly succeeded in its soft landing by lowering inflation while avoiding a recession. The only issue is that goes against what most Fed members have forecasted.
The July 26 FOMC meeting will be very important for the market, not for the current monetary policy, but for the future rate policy communicated.
Moving Forward
How quick are this week's buyers willing to take profits and run? We saw a healthy dose of that on Friday. All of the TSP funds pulled back on Friday with the S-fund giving back around 1%. The selling was local as well. We saw a herd of sellers moving out of stocks funds and into the G-fund in the Thursday and Friday Last Look Reports. The question is if that trend will continue, or if the bulls can again drive this market higher next week.
Earnings season really gets going next week. Despite the selling on Friday, large bank earnings were a good start to the earnings season. That is why the C-fund only lost 0.1% on Friday. But can their advantages carry over to smaller banks and companies outside the financial sector?
TSP Fund Performance
TSP investors were able to find gains anywhere they were invested this week, especially if they were out of the G-fund. The I-fund ended the week with the best return. It was up 4.46% over the five days.
The F-fund was up 1.5%.
Here are the weekly, monthly, and annual TSP fund returns for the week ending July 7:
The large cap ETF SPY (C-fund) was up the first four days of the week. In retrospect, the dip in the first week of July was a buying opportunity. An open gap was created after the CPI report and the ETF broke through the trend line of the last two tops. Instead of filling that gap, the C-fund produced a new high for 2023 and its highest price since April 2022. Although it was a profitable week for the C-fund, it lagged the S and I-fund with its 2.44% gain this week.
The Dow Jones Completion Index (S-fund) climbed quickly this week and it too produced a new high for 2023 on Thursday. The S-fund was down 0.96% on Friday but had enough gains left over from the rest of the week to outperform the C-fund. The S-fund's net gain for this week was 3.86%.
Taking a step back to a six-month chart, we see the S-fund finally reached the highs produced earlier in the year. But those gains were given back quickly in February. Will investors be quick to exit in fear of a repeat?
The I-fund is the less popular TSP stock fund, but this week it was the most profitable. The CPI and PPI reports lowered expectations for future rate hikes by the Fed, and that put some heavy pressure on the dollar. Weakness in the dollar helped propel the foreign markets the I-fund represents. The EFA chart gapped up sharply on Wednesday and Thursday. The Thursday gap was partially filled on Friday, but there was a little support form the June high. The I-fund ended the week with a gain of 4.46%.
The bond ETF BND snapped back alongside stocks this week thanks to the lower yields the inflation data induced. It seemed the chart was losing its grip last week but this week's gains brought it back to the price range it has been trading in for around two months. The ETF BND chart is back above its 200-day EMA. The F-fund gained 1.52% for the week.
Good luck and thanks for reading. We will be back here next week with another TSP Wrap Up. You can read our daily market commentary at the Market Comments page. If you need more help deciding what to do with your account, perhaps one of our Premium Services can help.
Thomas A Crowley
wwww.tsptalk.com
Last Look Report
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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.
