The unknown, the overreactions, the pessimism followed by optimism followed by more pessimism; this all added up to a volatile week that would have certainly been an emotional experience for anyone holding stocks through the week. Coming into Monday it seemed like we were bound for mayhem. A second bank had failed over the weekend, being the third largest bank to fail in the U.S. after the second largest bank failed just days before. But swift action taken by a number of regulators that included the Federal Reserve that included emergency measures to contain the problem and prevent a sweep of bank runs. Next we had the Consumer Prices Index and Producer Price index that both pointed to slowing inflation but still considered high compared to the Fed's goal. Specifically the year over year CPI comparison was an increase of 6%; the Fed's inflation target is 2%.
After that was just bank news and speculation on how the Fed is going to handle the inflation and the current fragile bank sector. The FOMC meeting is next week and before this week there was a high chance of them raising interest rates by 0.50%. Now a 0.50% rate hike is off the table and there is now a chance of no action by the Fed in next week; although the consensus higher likelihood is a lower 0.25% rate increase. The Fed have been raising rates at an unprecedented pace and were doing so until they saw real signs of trouble or something broke. Well the whole banking system was left vulnerable when naturally these steep rate hikes drove bond yields higher thus driving the market price of bonds lower. This would only be a problem if banks were forced to sell these bonds. And that is what happened to the two bank failures, a flood of withdrawals forced them to liquidate and take massive losses on these bond investments. So much for a soft landing. So now the Fed is between a rock and a hard place; stopping rate hikes could reverse progress on inflation damage their reputation, while raising rates could worsen the banking situation and could even drive the economy into a recession quickly.
This drama disrupted the markets and put money in rotation. The losers were small cap indices that carry the regional stocks and other small cap indices. Large caps were saved by rotation into big tech stocks like Amazon, which gained more than 10% this week. This left the large cap C-fund alone as the only TSP stock fund with a gain this week. The S and I-fund were left with losses especially after the week ended with another swing lower.
Bonds were up giving the F-fund its second week of gains over 1%. Maybe this will help the spreadsheets of banks.
Expect volatility to continue. The FOMC meeting that starts Tuesday and ends Wednesday will likely add fuel to the fire. The Fed will not be able to satisfy everybody no matter what rate decision they make. Although the bulls may enjoy a pause on the rate hike for the short-term, that decision would also give the impression that their is real reason to worry about the banking system.
Looking for an edge on your TSP return? Get the Last Look Report for as low as $4.19 / month. The report is a daily email on the TSP Talk AutoTracker moves, news, forum threads, and more before the IFT deadline. The service is aimed to help you make your own IFT decisions by giving you relative information 30 min prior to the deadline including where the members of TSP Talk are moving their money.
Here are the weekly, monthly, and annual TSP fund returns for the week ending March 17:
SPY (S&P 500 / C-fund) opened down to start the week but right away showed strength over small caps thanks to a large weight of tech stocks that performed relatively well against the falling financial sector. The was recovering from the losses invoked by the bank failures but when prices reached the cluster of moving averages, more specifically the 200-day EMA, that marked the high for the week. The C-fund fell more than 1% Friday reducing its weekly gain to 1.49%. This outperformed all other TSP funds, but it was no contest against the other stock fund that both ended the week in negative territory. But the C-fund and F-fund (bonds) were not far off.
The Dow Completion Index (S-fund) did not have the help of large banks and big tech companies to counter the weight of the falling regional bank stocks and the general weakness seen across small caps. We may be seeing the early start to a bear flag which tend to break down. The S-fund ended the week on a low falling 2.23% on Friday alone to give up the week's gains and giving it a 1.66% loss for the week.
The I-fund (EAFE Index /EFA) took the greatest loss among the TSP funds. The ETF traded similar to the U.S. indices except a significantly larger pull-back on Wednesday when there was news the U.S. banking issues were popping up in large Europeran bank spreadsheets. The price was able to remain above the 200-day EMA which is a good sign for technical support, but the I-fund lost 2.49% for the week giving up the best return of 2023 to the C-fund.
After higher yields droveBND (Bonds / F-fund) down in February a few banks failed after they were forced to sell taking large losses in attempt to cover vast withdrawals. The knee jerk reaction has been a swift move in the other direction. The F-fund has gained more than 1% for the second straight week. That gives bonds a 2.48% gain in March after jumping up another 1.43% this week. The ETF BND gapped up to start the week pulled back Tuesday to fill the new open gap. However price direction resumed higher. Now the ETF is above its 200-day EMA and its greatest resistance the last three days has been the bottom of the open gapped produced in early February. Speculation that the FOMC may slow down its rate hikes has allowed another reason for yields to settle down.
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
Facebook | Twitter
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.
After that was just bank news and speculation on how the Fed is going to handle the inflation and the current fragile bank sector. The FOMC meeting is next week and before this week there was a high chance of them raising interest rates by 0.50%. Now a 0.50% rate hike is off the table and there is now a chance of no action by the Fed in next week; although the consensus higher likelihood is a lower 0.25% rate increase. The Fed have been raising rates at an unprecedented pace and were doing so until they saw real signs of trouble or something broke. Well the whole banking system was left vulnerable when naturally these steep rate hikes drove bond yields higher thus driving the market price of bonds lower. This would only be a problem if banks were forced to sell these bonds. And that is what happened to the two bank failures, a flood of withdrawals forced them to liquidate and take massive losses on these bond investments. So much for a soft landing. So now the Fed is between a rock and a hard place; stopping rate hikes could reverse progress on inflation damage their reputation, while raising rates could worsen the banking situation and could even drive the economy into a recession quickly.
This drama disrupted the markets and put money in rotation. The losers were small cap indices that carry the regional stocks and other small cap indices. Large caps were saved by rotation into big tech stocks like Amazon, which gained more than 10% this week. This left the large cap C-fund alone as the only TSP stock fund with a gain this week. The S and I-fund were left with losses especially after the week ended with another swing lower.
Bonds were up giving the F-fund its second week of gains over 1%. Maybe this will help the spreadsheets of banks.
Expect volatility to continue. The FOMC meeting that starts Tuesday and ends Wednesday will likely add fuel to the fire. The Fed will not be able to satisfy everybody no matter what rate decision they make. Although the bulls may enjoy a pause on the rate hike for the short-term, that decision would also give the impression that their is real reason to worry about the banking system.
Looking for an edge on your TSP return? Get the Last Look Report for as low as $4.19 / month. The report is a daily email on the TSP Talk AutoTracker moves, news, forum threads, and more before the IFT deadline. The service is aimed to help you make your own IFT decisions by giving you relative information 30 min prior to the deadline including where the members of TSP Talk are moving their money.
Here are the weekly, monthly, and annual TSP fund returns for the week ending March 17:
SPY (S&P 500 / C-fund) opened down to start the week but right away showed strength over small caps thanks to a large weight of tech stocks that performed relatively well against the falling financial sector. The was recovering from the losses invoked by the bank failures but when prices reached the cluster of moving averages, more specifically the 200-day EMA, that marked the high for the week. The C-fund fell more than 1% Friday reducing its weekly gain to 1.49%. This outperformed all other TSP funds, but it was no contest against the other stock fund that both ended the week in negative territory. But the C-fund and F-fund (bonds) were not far off.
The Dow Completion Index (S-fund) did not have the help of large banks and big tech companies to counter the weight of the falling regional bank stocks and the general weakness seen across small caps. We may be seeing the early start to a bear flag which tend to break down. The S-fund ended the week on a low falling 2.23% on Friday alone to give up the week's gains and giving it a 1.66% loss for the week.
The I-fund (EAFE Index /EFA) took the greatest loss among the TSP funds. The ETF traded similar to the U.S. indices except a significantly larger pull-back on Wednesday when there was news the U.S. banking issues were popping up in large Europeran bank spreadsheets. The price was able to remain above the 200-day EMA which is a good sign for technical support, but the I-fund lost 2.49% for the week giving up the best return of 2023 to the C-fund.
After higher yields droveBND (Bonds / F-fund) down in February a few banks failed after they were forced to sell taking large losses in attempt to cover vast withdrawals. The knee jerk reaction has been a swift move in the other direction. The F-fund has gained more than 1% for the second straight week. That gives bonds a 2.48% gain in March after jumping up another 1.43% this week. The ETF BND gapped up to start the week pulled back Tuesday to fill the new open gap. However price direction resumed higher. Now the ETF is above its 200-day EMA and its greatest resistance the last three days has been the bottom of the open gapped produced in early February. Speculation that the FOMC may slow down its rate hikes has allowed another reason for yields to settle down.
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
Facebook | Twitter
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.
