At the start of the month, few could have foreseen the looming bank crisis that would have everyone question the stability of the economy. Naturally stocks sold off sharply in the first couple weeks as investors feared the worst, a national bank run that would collapse the banking system taking everyone's cash with it. Regulators, including the Federal Reserve, took extreme measures to prevent the worst, and in doing so they set up a 'goldilocks environment' that would spark a rapid recovery in markets over last couple week. Since their lows establish mid-March, the TSP stock indices have climbed 6.70% (C-fund), 5.41% (S-fund), and 6.83% (I-fund) to finish out March while accelerating their growth over the last three days.
In hindsight, the banking-system turmoil ended up working in the bulls favor. Not only has the bank run been contained successfully so far, but the Fed has signaled it might end its rate-rise campaign sooner than expected. The reason being that the stress induced in the banking system could cause a pull back in credit growth and in itself do the Fed's intended job when it raised interest rates.
This realization induced a rally fueled partly by the fear of missing out (FOMO). Stocks have risen in the last three days and the S-fund outperformed for the week with a 4.85% gain. On Friday the Core Personal Consumption Expenditure (PCE) Price Index came in slightly under expectations which allowed the rally to continue its course. The PCE is said to be the Fed's favorite inflation indicator and its on target drop has allowed investors to feel better about inflation while banks are still fragile.
A major concern going forward is if the recent recovery is itself an overreaction. It could be easily flipped by another bank going under or if investors unveiled misconceptions about the Fed. Some buyers may be pricing in rate cuts by the Fed, but Powell has said they do not plan on that in the foreseeable future so it would take another detrimental economic fallout for them to go there.
The market is volatile in any direction you look, but that has certainly created opportunities. Unfortunately FOMO only works for so long and tends to be followed by a correction to some degree. Don't let being underinvested lead you to making emotional decisions. "Because everyone else is doing it" is not a good investing strategy. Those who sold mid-March for the same reasons are hurting the most.
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Here are the weekly, monthly, and annual TSP fund returns for the week ending March 31:
SPY (S&P 500 / C-fund) stuck around its three major moving averages (20, 50, and 200-day EMAs) at the start of the week. But the large cap ETF moved higher three consecutive days to finish the week giving the C-fund a 3.50% gain for the week. However it lagged the S and I-fund in that time. The C-fund has risen quickly over the past few weeks. From its 2023 lows established on March 13th, the C-fund has gained 6.70% in the three weeks. It ended the first quarter with a 7.49% gain.
The Dow Completion Index (S-fund) outperformed the TSP funds for the week as small caps rose with enthusiasm. The index ended the by filling an open gap from weeks earlier and closing above its 50-day EMA for the first time in weeks. The index is still below its 200-day EMA. The S-fund rose 4.85% this week yet lagged the TSP stock funds for the first quarter of 2023 with its 5.85% gain.
The I-fund (EAFE Index /EFA) was up everyday this week. While the U.S. stock funds slipped on Tuesday, the I-fund was able to rise in price. The ETF has moved above resistance effortlessly and is not far from its previous highs. Since establishing its March low on the 15th of the month, the I-fund has risen 6.83% in just over two weeks of trading. The I-fund finished this week with a gain of 4.10% and has leads the TSP funds for the year with an 8.63% gain.
BND (Bonds / F-fund) started the week with a gap down. The ETF slipped further Tuesday and closed back below the 200-day EMA. Over the first two days the F-fund was down 1.11%. But the volatile bond market swung the other direction the second half of the week. Half of the early losses recovered and the open gap produced on Monday was partially filled. The F-fund lagged the TSP funds with a loss of 0.47% for the week. However the F-fund had a very impressive first quarter (and volatile) that ended with a 3.13% gain in the first three months.
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.
