The bulls' overconfidence in the Fed set them up for failure. Stocks were up early to start the week leading up to the FOMC meeting where the Fed was expected to raise raise by 0.5%, a slow down from its 0.75% rate hike pace. Prices took a step further Thursday morning when the Consumer Price Index showed that prices had dropped by more than anticipated, another signal that the rate hikes were doing their intended purpose of bringing down the inflation rate.
Prices pulled back from the early Tuesday high but the bulls, who were over zealous for more gains, were sure the Fed would be the icing on the cake. It turned out the Fed was not the dove it seemed to be from a distance. The committee did raise rates by 0.5% as expected but added a hawkish tone about its projections. Fed Chairman Jerome Powell personally thinks the ultimate level of rates will need to be higher than thought in the September FOMC meeting in order to reach the 2% inflation goal. That means he thinks that although the rate of increases have slowed, rates will be raised for longer and higher than previously thought.
This knocked the wind out of the bulls and Wall Street prices dropped over the next two and half days. Poor economic data did not help, including sluggish retail sales in November to start the holiday shopping season.
The question now is is this a beginning of a correction or an overreaction that presents itself as a buying opportunity? Those who are buying now are counting on the seasonal Santa Claus rally in this second half of December. Those same optimists are not talking about what happened in December of 2018.
Ultimately all the TSP stock funds were down more than 1.75% for the week. The C-fund lagged the funds with a loss of 2.05%
Bonds led the way this week and the F-fund accumulated a gain of 0.79%.
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Here are the weekly, monthly, and annual TSP fund returns for the week ending December 16:
SPY (C-fund) took off early in the week running into its 200-day EMA at Monday's close only to gap up to the December established high Tuesday morning following the Consumer Price Index. That proved to be the high for the week. The ETF gave back the early gains heading into the FOMC policy decision Wednesday which would ultimately send Wall Street spiraling over the last two day.
The drop in price in reaction to the Federal Reserve policy dropped the index back below its 200, 20, and 50-day EMAs. Thursday was the first drop below the 50-day in over a month. An open gap from November was also partially filled. The C-fund lagged the TSP funds for the week with a net loss of 2.05%.
The Dow Completion index (S-fund) followed suit with SPY but the major difference being it actually filled the November open gap. Is this a sneak peak to the SPY chart? The index is now below the three moving averages listed and below that open gap that was filled Friday. Despite the lower position in compared charts, the S-fund actually lost less this week than the C-fund. The S-fund was down 1.79% to end a six week streak of being outperformed by the I-fund.
EFA (I-fund) reached a new high not seen in months on Tuesday but the price range was short-lived. The ETF fell with U.S. stock indices and even left an gap open from Monday's lower opening. A major difference between this chart and the previous two is that EFA remains above its 50 and 200-day EMAs. There are two gaps below that may deter would be new buyers following the pull-back. The I-fund lost 1.89% this week to underperform the S-fund to officially end its six week streak of outperforming the C and S-fund; still outperforms the C-fund for a seventh week. The I-fund is down 2.58% in December while the C and S-fund are down 5.50% and 6.24% respectively.
BND (F-fund) outperformed the stock funds this week producing a 0.79% gain over the week despite a 0.24% loss to end the week on Friday. The ETF remains on trajectory higher and the rising support continues to hold for now.
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
LLast 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.
