The recent changes to the market environment has left investors lost. Volatility picked up this week and the direction of equity prices is divergent day to day and index to index. The week started with a rally but the optimism slipped for most of the week and even more when investors were not settled when Jerome Powell basically signaled the Fed has no plan to intervene in the bond market and the central bank is satisfied with the inflation rate. The week ended with a rally the later half of Friday in response to a jobs report that exceeded expectation. Friday's action pushed large caps (C-fund) into positive territory for the week but left small caps (S-fund) to lose more than 2% for the week despite the 1.5% gain Friday. Bond prices slipped to just above last week's lows to put the long-term bond yield near the previous week's highs.
Markets are unsettled because its still not completely clear what is going on. Is inflation concerns the real cause or is the economy finally entering widespread growth reducing the appeal of the pandemic out performers that have been carrying indices? Bond yields could be reflecting both. Its a no-brainer money has flooded the economy but it is also doing its purpose of stimulating the previously struggling pockets of the economy. Equity rotation is the result and we see prices oscillating until valuation are corrected. What this means for the overall market going forward is, like always, not obvious. A growing economy is promising but may already be priced in. Or maybe we are in the middle of healthy pull back that will allow the economy to catch up with equity prices. The views are split but some stock investors may also not be in favor of good economic numbers if it decreases the likelihood of more stimulus and increases the likelihood of tighter monetary policy. Neither are appealing in the short-term but could be a plus for the long-term view.
Stocks should not go straight up and when they do there is trouble building. The stock indices are currently having trouble putting consecutive positive days together. I expect some more interesting days ahead next week while the market continues to figure itself out.
Here are the weekly, monthly, and annual TSP fund returns for the week ending February 5:
The SPY (S&P 500 / C-fund) rallied Monday but instead of extending further to test the February highs we saw the index fall short of price from two days prior. The technical result is a declining trend line. The index went on to trade below its 50-day EMA Thursday and early Friday. A rising trend line from previous lows held as support both days. The C-fund recovered its losses Friday and was able to end the week with a gain of 0.84% but not without some technical changes.
The Dow Completion Index (S-fund) could not trade back above its 50-day EMA after falling below on Friday. The 50-day EMA price was the peak of Friday's action which was a gain for the day but not enough to get the index into a better technical position. The S-fund lagged the TSP funds with a loss of 2.12%.
EFA (EAFE Index / I-fund) recovered lost ground Friday and staggered around its 50-day EMA Thursday and Friday but never closed below it. The index is in a falling trading channel starting in mid-February but is not under water yet. The I-fund gained 0.61% for the week.
BND (Bonds / F-fund) slid from the recovery bounce from the previous Friday to nearly match the previous low. The trend is down but there is a possibility for stabilization. Two open gaps are above with one above the 200-day EMA. The F-fund fell 0.8% 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
www.tsptalk.com
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