This push-and-pull price action is making me dizzy. Who is in control of this market? The bulls have succeeded in keeping the S&P 500 (C-fund) buoyant but lack the conviction to maintain price momentum. The charts look good, the long-term trend is up, and the S&P 500 is trading at its highest level in 2023.
What the bears have is the Federal Reserve. The 'what ifs' of next week kept investors in check and action tame this week. The Fed makes a rate policy decision Wednesday, and there is a high level of confidence that they will keep rates steady for the first Federal Open Markets Committee (FOMC) meeting since they started raising rates continuously in March of 2022. At first glance, this seems like a win for the bulls. But that high level of confidence has left enough uncertainty to keep would-be buyers hesitant. Currently, on the night of June 9th, there is still a 30% chance the Fed will raise rates by 25 basis points. And the latest Consumer Price Index comes out on Tuesday, the day before the rates decision. The CPI is a report card on inflation. Higher-than-wanted CPI numbers can provoke the Fed to run the yellow light and continue its rate hike campaign.
Even if the CPI numbers align with expectations and the Fed pauses rate hikes, market participants will pay close attention to what the Fed is planning for the rest of the year. At one point the market was pricing in rate cuts by the end of 2023. But now that seems unlikely. Contrarily, some Fed members have spoken publicly about their support to continue raising rates after this month's pause if needed. If they don't make it clear to the market that further rate hikes are a possibility, then they won't be able to use that tool to fight inflation in the near future without shocking the markets and igniting deep sell-offs. The Fed is in a state of 'wait and see' and so must be the stock market.
Small caps outperformed large caps this week to tighten the gap between the C-fund and S-funds' 2023 returns. It has become obvious that the S&P 500 has become a top-heavy index where most of the yearly gains have come from the top few companies that carry the greatest market capitalization leaving the index's performance vulnerable to any rotation out of these mega companies. These companies all land in the tech sector of the S&P 500, further condensing the diversification that the index fund was designed to provide. When you invest in the C-fund, you are actually investing in the mega-cap tech companies.
The S-fund was up 1.17% for the week while the C and I-fund were up just 0.41%.
The F-fund lagged with a loss of 0.15%.
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Here are the weekly, monthly, and annual TSP fund returns for the week ending June 9:
The C-fund's price range remained relatively tight this week and settled with a 0.41% gain for the week. The greatest move in either direction came on Thursday where the C-fund gained 0.63%, which was the only move more than 0.5% in any direction through the week. The C-fund was up three of the five days this week and each of those days it established a new 2023 high. Prices are holding steady at the highs but there is little to justify the large cap fund to take off at any greater pace.
The S-fund led the TSP funds for the week but with only two positive days through the week. The S-fund was up gained 1.86% on Tuesday and 0.69% on Wednesday. The other three days were all negative with Monday's 0.76% loss being the worst. The net return was a 1.17% gain.
The S-fund was helped out on Tuesday by a rally in regional stocks that were rebounding from the hole they slipped into in the previous months. That Tuesday rally did not just supply most of the gains for the week, it pushed the Dow Jones Completion Index (DWPCF) chart above the resistance line of the nearly three month long trading channel. The S-fund pulled back just 0.6% Thursday and Friday which was a low enough loss to keep the current price above the previous resistance line. The next technical obstacle for the bulls is the high established for May (solid red line).
The I-fund moved congruently with the C-fund this week. None of the day's returns matched between the two funds but they both ended the week with a 0.41% gain. The ETF EFA chart did not fill the open gap left behind the previous Friday. Rather the price was held up and traded in a relatively tight range. The I-fund's best day came Thursday when it was up 0.88%. But even then it was recovering from the losses from the previous day.
The F-fund also swung in both directions through the week. It ended up with the only negative return for the week, although it was only down 0.15%. Still, it doesn't have the best technical position. It is below its 20, 50, and 200-day EMAs and its momentum has been a fall trajectory since the beginning of June. It is in a bull flag formation, which tend to break to the upside, but the resistance that would follow wouldn't be a walk in the park.
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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