Another volatile week leaves stocks with weekly gains but not without pain. The C and S-fund reached their highs on Tuesday; the S-fund led the way with a 3.12% gain in the first two days. Those first couple days of strength led into the FOMC rate decision Wednesday afternoon. The market was higher intraday when the Fed announce a 25bps rate hike, this was what was expected with the Fed trying to balance their battle against inflation and the liquidity concerns across the banking sector. Then Jerome Powell and Janet Yellen opened their mouths and the markets did not like what they heard.
In the FOMC press conference in the late trading hours of Wednesday, Jerome Powell took a more hawkish stance than the market expected. Those expecting regulators to protect the economy against the consequences of Fed Fund hikes on bond yields and bank liquidity were surprised to hear Powell sternly discredit the idea the Fed would start cutting rates in the near future. Instead, Powell communicated another potential rate hike in the next FOMC meeting followed by holding the rate steady with some additional policy firming when appropriate. The Fed is sticking with their mandate to stabilize prices and reach their 2% inflation goal. Powell was not as worried about the banking situation as the market portrayed and actually considered the banking conditions as a pseudo rate hike.
Powell was not the only one disheartening investors. At the same time as Powell's press conference, Janet Yellen spoke to congress and an intraday sell-off coincided with her comments that regulators were not considering blanket insurance on all bank deposits. Wednesday's early gains quickly turned to sharp losses in the last two hours. The S-fund ended the day with a 2.64% loss.
The last two days traded within the range established for the week, but investors were not willing to buy above the Tuesday highs. Janet Yellen tried to walk back on her Wednesday statement making it clear that regulators were prepared to help with potential liquidity problems, but this time she forgot to mention the banking system was stable and the market noticed; dip buyers' efforts were dissolved in the second half of Thursday's trading.
U.S. stocks indices saw steady gains Friday, but the gains were kept below 0.6%.
The I-fund was the place to be most of the week to be shielded from the drama induces by U.S. regulators, but a deep sell-off in the European Deutsche Bank stock helped to drop the I-fund's weekly gain by nearly 1% on Friday. The I-fund still managed to outperform for the week with its 2.03% gain. The S-fund lagged the TSP stock funds with a 0.54% gain for the week despite its 3.12% gain after the first two days.
The F-fund gained 0.53% after it bounced back from its early week lows.
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Here are the weekly, monthly, and annual TSP fund returns for the week ending March 24:
SPY (S&P 500 / C-fund) got a boost heading into the FOMC meeting. The C-fund was up 2.21% for the week by the end of Tuesday. That would be the high. The ETF moved higher intraday Wednesday but pulled back during the last couple hours while top regulators Janet Yellen and Jerome Powell separately spoke on the banking situation and specifically Fed fund rates for Powell. An open gap from Tuesday was filled and the ETF could not bounce back to the the Tuesday highs for the rest of the week. The C-fund ended the week with a gain of 1.41%.
The Dow Completion Index (S-fund) lagged the TSP stocks funds for the week despite leading the three on Tuesday with a 3.12% gain in the first two days. A 2.64% loss on Wednesday erased most of the S-fund gains for the week and filled the open gap from Tuesday higher open. The S-fund did not end the week on a low, but did break below a bear flag and remained below the flag support line through Friday. The S-fund gained 0.54% for the week.
The I-fund (EAFE Index /EFA) was up the first four days of the week. the 20 and 50-day EMAs acted as support through mid-week, but failed Friday when the ETF opened below them. More liquidity instability in the European Bank system affected the I-fund more than U.S. stocks. The I-fund fell 0.94% on Friday alone to drop its weekly gain to 2.03%. This was still enough for the I-fund to outperform the C and S-fund for the week.
BND (Bonds / F-fund) pulled back early in the week leading up to FOMC meeting. By Tuesday the ETF was back below its 200-day EMA and down 0.81% for the week. Over the next three days, that 0.81% loss turned into a 0.53% gain. As the banking problem has continued and worries move from bank to bank, investors are piling into safer assets. Friday capped the steepest three week decline in the 10-year Treasury Yield since March 2020 when the economy went into lockdown. This could actually be helping the liquidity problem for now by shrinking the unrealized losses banks hold in their bond assets. The BND finally filled the open gap from the beginning of February. Its next obstacle higher would be to test the high established on February 2nd. Currently the F-fund would need a 0.40% gain to match the February high.
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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