The bulls have lost their grip on the new and improved 2023 market. All the TSP funds are still in positive territory for the year, but the narrative that drove those prices higher in January has nearly dissolved and the indices' charts do not look attractive to new buyers. The C and I-fund had their worst week so far in 2023 and the S-fund had the worst loss among them. Of course, without surprise, we can attribute the market action to inflation and the Federal Reserve's plan of action. Can the market rise if inflation and borrowing costs also rise?
That is what is happening right now in the U.S. economy. Investors were already concerned coming into this shortened week that Fed may need to continue raising rates rather than pause rate hikes and eventually decrease borrowing costs later in the year; this was the narrative that drove stock prices higher in January. So with momentum on the bears' side as indices have pulled back from their recent highs, the latest inflation measure came out Friday showed an increase in inflation in January.
The personal-consumption expenditures price index produced higher year-over-year in January than seen in December. That means inflation is no longer falling, but rising again. Investors must now face the fact that Fed is likely to continue raising rates for months to come. What else they need to consider is if they will increase the magnitude of rate increases per meeting after lowering it to a 0.25% increase in the last meeting.
The probability of a 0.5% rate hike in the March FOMC meeting has risen from 0% to 27% in a month.
Can the market rise if inflation and borrowing costs also rise? On the bulls side of reasons to buy lives the strength of the economy. There is reason why inflation remains resilient and that is because business is happening in the United States, and consumers (the backbone of the the U.S. economy) have not let higher prices and higher borrowing costs stop them from spending money. The labor market remains strong thanks to pockets of strengths within the economy and that further fuels future spending by consumers. Bad for inflation, good for business; for now.
Bonds were down with stocks as yields rise along with expectations of further rate hikes by the Fed.
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Here are the weekly, monthly, and annual TSP fund returns for the week ending February 24:
SPY (C-fund) fell right though the support of its major moving averages. The ETF is back below its 200-day EMA for the first time since mid-January and the first time it is below its 50-day EMA since the first few trading days of 2023. There is still plenty of room to fall if you consider the lows. The bulls will hope something can come along to redirect the Fed narrative in their favor. The C-fund fell 2.66%, its worst week in 2023 so far.
The S-fund (DWCPF) may not have had its worst week of 2023, but it had the worst return among the TSP funds for the week. The S-fund lost 2.91%. The S-fund has fallen 5.66% since reaching its latest high on February 2nd. The one plus the DWCPF index has is it remains above its 50 and 200-day EMAs, a potential for support going forward.
EFA (I-fund) could not hold up any longer after continuously testing a low established early in the month. The index fell deeper Friday and could not be held up by its 50-day EMA either. The I-fund lagged the C-fund and fell 2.72% for the week. A gap is now open from Friday's sell-off.
BND (F-fund) has fallen steadily for weeks as yields rise in anticipation for further rate hikes by the Fed. The F-fund fell 0.89% this week which brings its 2023 return down to 0.33%, that is below the G-fund return for 2023. The F-fund has fallen 3.55% from a high also established on February 2nd.
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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