For the first time in 2023, all of the TSP funds outside the G-fund were down for the week; and they were all down by more than 1%. Now we wonder if this was healthy consolidation in the new and improved stock market, or a real lasting change in sentiment. There was no doubt a character change took place in the market this week. The market was still processing the previous week's excitement of a smaller rate hike followed by an unexpectedly colossal jobs report. Jerome Powell did get to speak publicly following the jobs report which induced a volatile Tuesday. But outside of Tuesday, new buyers were less interested this week without a large piece of excitement.
Will they come back for next week's Consumer Price Index report? The market has been obsessed with the Federal Reserve and this CPI report is their next report card. Are they pulling off a 'soft landing'? Buyers expect the Fed to pull off a so called soft landing where they are able to shrink inflation and stabilize it at 2% without dragging the U.S. economy into an inflation. The more the Fed is provoked to raise borrowing costs, the less likely that seems accomplishable, although Jerome Powell mentioned it as still likely in the FOMC press conference.
However, in response to the Friday jobs report, Jerome Powell said Tuesday that the process of lowering inflation to reach the central bank’s goal of 2% “is likely to take quite a bit of time.” That changes a sentiment that the Fed would end their rate hikes in the coming months and even start cutting rates within the year, which was a contributing idea that fueled the rally in January. What will higher interest rates look like for longer period of time? This is something new investors must consider.
The year-over-year Consumer Price Index is expected to be reported at 6.2% on Tuesday. The report matched expectations at 6.5% in the January report. The Fed's efforts and credibility would be demoralized if Tuesday's CPI is 6.5% or higher. The CPI y-o-y has dropped the last six straight months after peaking at 9.1% in July 2022.
Earnings did not too much to excite either. Tech companies were underwhelming investors which contributed to the weakness in the second half of the week. Earnings continue next week but the larger companies reporting are thinning out.
Is there still room for more buyers in this market or did the January rally dry up all the cash? Looking locally at our own TSP Talk AutoTracker we see there is still plenty cash in members' G-funds. After many moved to the sidelines during the worst of 2022's action, the G-fund still holds the majority of allocations among non-premium members, although it is close. Members still have 34.77% of their allocation in the G-fund, and 34.51% in the S-fund.
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Here are the weekly, monthly, and annual TSP fund returns for the week ending February 10:
The SPY (C-fund) dropped 1% this week but has formed a bull-flag in the process. Bull flags tend to break out at the top of the falling trading channel. The current price is near the middle of the top and bottom of the trading channel. The 20-day EMA may be contributing to support, or it looked that way on Friday when the 20-day EMA was approached but remained below the low for the week.
The Dow Completion Index (S-fund) lagged the TSP funds for the week with a loss of 3.07%. The S-fund still holds the best return for 2023 but I wonder if it will start losing supporters or start attracting the underinvested after a drop like this? This chart also looks to have a bull flag with the price near the bottom support close to the 20-day EMA.
EFA (I-fund) dropped 1.10% this week but the chart looks different than the U.S. stock indices. The EFT chart has consolidated and after quick run up to start they year, the price is about even with where it was a month ago. The price is about even with its 20-day EMA.
BND (F-fund) took a technical turn for the worse. The F-fund suffered a 1.44% loss, underperforming the C and I-fund. But the technical damage is considerable. The price that had established itself above the 200-day EMA not only. fell below it Monday, but continued until the price was below the 50-day EMA Friday for the first time since the last trading days of 2022. Two gaps remain open that would require the ETF to trade back above the 200-day EMA.
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.
