TSP Talk Blog

Stocks were mostly higher yesterday as the Fed raised interest rates and the tax bill gets a push to try to beat the clock. The Dow gained 81-points, which was quite a bit off the highs, and the S&P 500 actually ended the day slightly in the red after a late push lower. The dollar was down sharply on the news helping the I-fund close at new highs, while bonds rallied.

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The Fed raised interest rates by 0.25% as expected, but they also raised their GDP estimates to 2.5% from 2.1%, and that helped stocks stay buoyant for most of the day although there was some late selling that pushed the S&P 500 slightly into negative territory.

The bond market actually rallied on the news (yields went down) for reasons that may be a bit convoluted to explain clearly, but from what I understand, the bond market thought the fed could have gone to 4 rates hikes next year given what sounded like the Fed's high expectation for the economy next year. But they are still talking about 3 hikes more in 2018 so bonds moved higher.

The AGG (bonds / F-fund) continues to trade within that pennant formation and failed breakouts and failed breakdowns have become almost daily events lately.




There were more points made by the Fed but the stocks market seems most focused on the impending tax bill. The small caps, which may be the most impacted sector, outperformed yesterday as it appears the Republicans may need to fast-track the bill now that a new Democratic Senator has been elected but not sworn in yet. Democrats will not like that, and will fight it, so the battle now for stocks may be whether or not the bill can be completed and signed by the president before the end of the year. Every headline regarding that could be a market mover.


The SPY (S&P 500 / C-fund) made a new intraday high but a late pullback at the close pushed it into negative territory for the day, but it was basically flat. It remains above the top of its trading channel but rather than pullback from this overbought level, it seems to be holding up rather stubbornly.




The small caps / S-fund posted some gains yesterday but the chart continues to drift sideways and we continue to see closes well off the highs.




The Dow Transportation Index also posted some solid gains, but it may have created a negative reversal day as you see another new kangaroo reversal tail.




The EAFE Index (I-fund) had a big day as stocks rallied early in the U.S., plus we saw a fairly good sized sell-off in the dollar.




The dollar was rallying off those November lows but the recent rising trading channel was broken by yesterday's sell-off, helping the I-fund to new highs.




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Thanks for reading. We'll see you back here tomorrow.

Tom Crowley


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