Stocks tumbled this week but it was the S and I-fund that took the greatest hit. Large cap C-fund slipped this week but hit its low Wednesday with a 1.49% loss for the week up to that point; the index would climb higher the next two days to settle for a 0.55% loss for the week. Both the S and I-fund sank more than 2% for the week with the I-fund lagging just short of 3% in losses. The greatest market mover was the reaction to the Fed minutes released Wednesday that gave insight to market participants to what they already knew: The Federal Reserve plans to start tapering its bond purchasing program. What was new was a the seemingly consensus to start before this year ends. The market has been rolling higher no problem for months with a lot of thanks to the central bank's support. The tapering is the beginning of the end of that support and will eventually be followed by rate hikes if the economy continues its growth and inflation continues to grow. Jerome Powell will be speaking at a Jackson Hole symposium next week and will have the attention of equity and bond investors.
It has been 10 months since the S&P 500 has pulled back 5% or more. This is concerning more and more analysts that something big is brewing meaning a significant pull back is due. The easy ride in large caps has investors growing too complacent and when the big pull back tend to happen when everyone's guard is down. However this argument is not new and those who jumped out of large caps when a large pull back was just as plausible at the end of April have missed out on more than 6% of gains. Of course that is not true for the S-fund which is down since the end of April but my point is market doesn't make itself obvious. If anything we are finally seeing some potential swings in large caps which are healthier (less likely to result in large corrections) and make for great swing trading.
Bonds outperformed this week with a slight gain of 0.16% in the F-fund. The bond market seemed more prepared for what came out in the Fed minutes. The central bank's attention to inflation and the need to keep it at bay is a plus for bonds whose yields compete with inflation for purchasing power.
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Here are the weekly, monthly, and annual TSP fund returns for the week ending August 20:
The SPY (S&P 500 / C-fund) opened the week lower but dip buyers pushed the index to a new closing. That would be the high for the week. The index slipped the next two days, more so on Wednesday following the release of the Fed minutes. It was the first back to back days of losses for the index this month. The index did open lower Thursday but buyers started moving back into large caps and by Friday's close had erased most of Wednesday's losses. The C-fund fell 0.55% for the week.
The Dow Completion Index (S-fund) fell deeper than large caps and although the fund outperformed the C-fund Friday, the losses were not recovered. Actually some were, by Thursday's close the S-fund was down more than 3.5%. A 1.35% gain Friday put the fund at a 2.26% loss for the week. A gap was left open from Monday where small caps fell as large caps produced new highs. At its lows the index was below its 20-day EMA but closed just above them on Friday. The S-fund is now down 1.99% for the month of August.
EFA (EAFE Index / I-fund) action this week was most bleak. The I-fund had been an out performer in the weeks prior but lagged this week. An open gap was closed Monday but another one would open on Thursday's lower open. The index ended the week below its 20 and 50-day EMAs for the first time this month while losing 2.94% for the week. This week's losses pushed the I-fund down 0.41% for August.
BND (Bonds / F-fund) quickly filled an open gap from the gap down earlier in the month. The index made its way back to its 20-day EMA which held as support and the index made it to its highs for the week Thursday. The net gain for the week was 0.16% which made the F-fund the out performer 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
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