Mega cap tech earnings helped to elevate large cap indices this week leaving small caps and rational bears behind. The C-fund ended Friday with its second straight month of gains. That was not a shared accomplishment with the S-fund which has slipped in price for the third straight month. This discrepancy between the two U.S. indices is an example of how it is the larger companies that are keeping the economy from a recession. But how long can they hold the weight themselves?
Earnings have been mixed so far and overall they are expected to be lower than in the previous quarter. Some companies are struggling more than others in this high-inflation high-interest rate environment. Earnings from Microsoft and Meta and their market performances were the heavy lifters this week that helped bring the S&P 500 from early losses produced early in the week to a weekly gain and a new high for the year by Friday's close.
But the weekly return of the S&P 500 does not reflect the concerns that weighed down the broader small caps that materialized outside of earnings. Concerns such as a slowdown in growth for the U.S. Gross Domestic Product in the first quarter form the previous. Another being economic data showing wage growth remains elevated, a contributing factor to the high inflation and a target for the Federal Reserve's rising rates. Bank drama was also brought back to the forefront of the market's attention with the bank First Republic disclosing that customers pulled around $100 billion in deposits last month. The bank has lost nearly all of its market value and demonstrates that the bank crisis that started in March is still not over.
The Federal Reserve's FOMC meets next week and are expected to raise rates by 25 bps. The question is whether they plan to pause after this rate hike; something that may already be priced into the market. Investors are in a wait and see state and will be looking for any clarity for the Fed's interest rate plans for the rest of the year. The most hopeful expect the FOMC to start to cut rates later this year.
Earnings also continue next week with a busy schedule. Apple's earnings will be the main event but won't be public until after the market closes on Thursday.
The I-fund ended the week with a gain of just 0.07% but established a new 2023 high to start the week. Bonds were up with large cap stocks. The F-fund gained 0.83% to outperform the S and I-funds.
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Here are the weekly, monthly, and annual TSP fund returns for the week ending April 28:
Volatility picked up for SPY (S&P 500 / C-fund) this week. The daily price range expanded from the typical days seen in the previous weeks of April. Early in the week the SPY price broke below rising support that hadn't been tested since the second half of March. Traders noticed and the selling started through Wednesday where the 50-day EMA held as support and marked the low for the week. The C-fund was down 1.87% over the first three days which dropped its return for April down to -1.22%. This ended up being a buying opportunity for the C-fund. The SPY climbed back over the last two days of the week to not only erase the week's early losses but also close at a new high for 2023. The C-fund ended the week with a gain of 0.89% for the week to outperform the other TSP funds, and also end April with a 1.56% gain for the month.
The Dow Completion Index (S-fund) has thus far turned into a disappointment through the first four months of 2023 after a quick start to the year. The contrast in technical conditions between this chart and those of the SPY (above) and EFA (below) is stark. While the other TSP stock funds are making new highs for the year, the S-fund would need to rise 11.23% from its current price to match the 2023 established in February. The question is whether this difference is a warning sign or an opportunity. This week it was not an opportunity. The S-fund lagged the TSP funds with a loss of 1.06%; the only weekly loss among the TSP funds. The index is currently below its 20, 50, and 200-day EMAs while the other TSP stock chart are above the same major moving averages.
The I-fund (EAFE Index /EFA) ended the week with a gain of just 0.07% for the week but the fund did establish a new 2023 high on Monday. The ETF pulled back Tuesday and Wednesday but bounced back to just above even for the week by Friday's close but below the new high established Monday. The ETF traded in a sideways trading channel through the second half of April. The longer this sideways action prevails the more bulls will grow impatient and turn to bears. The I-fund outperformed the TSP funds for April with a gain of 2.87%.
BND (Bonds / F-fund) was back above its 20-day EMA early in the week but oscillated from there in a wide range as far as bonds typically move. BND closed around the middle of the trading range of this week which gave the F-fund a gain of 0.83% for the week to outperform the S and I-funds. This week's action brought the F-fund out of negative territory for April and the fund finished April up 0.61% by the end of it. The ETF still has the three major moving averages below the current price to give some investors a sense in safety in parking funds in the F-fund over the G-fund when they don't want stock exposure.
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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