TSP Talk Blog

Stocks opened flat to lower on Monday morning but the theme of early weakness and afternoon strength continued. By the close the Dow had gained 40-points but we saw larger percentage gains in the S&P 500, Nasdaq, and small caps, while the I-fund lagged again. The drift higher in U.S. stocks continues and rather than seeing a lot of buying, the very light trading volume makes it feel more like there is just a boycott on selling.

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The I-fund has been lagging and if you look at the major global markets, the U.S. is one of the few that has a gain over the lest few months. Is this trade war related, because it is not the Fed. We are raising interest rates and rolling back quantitative easing and at the same time our economy is growing. While the economies in Europe and China are slowing. So does that mean everyone is just piling into U.S. stocks?

That may be the case but valuations may be getting stretched. If bond yields were still rising, perhaps that would be an alternative to U.S. stocks, but the 10-year Treasury fell back below 3% in May and it hasn't been able to get back above it, so perhaps U.S. stocks are the only game in town?

That may not be a healthy situation, and the flattening yield curve can be an warning sign for the economy, but the credit market is telling us that it is working right now and investors seem to stick with what's working -- until it doesn't.

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The S&P 500 / C-fund inched up to produce a higher high on Monday, on fairly light volume, and in the process it officially filled the open gap from back in January. The July rally had it come up just short. The trend is up as we see a series of higher highs and higher lows, but it is clearly nearing some resistance and near the tops of the ranges.




The small caps (S-fund) has not made a new high but this is a decent looking chart as well, except for made the lower low it made in July. As I mentioned yesterday, new highs would improve this chart even more and remove some of the downtrend possibilities that we see.




The Dow Transportation Index did make a higher higher and that may be related to the weakness in the price of oil. At least the inverse comparison in the two charts might make us think so...




Oil...




The EAFE (I-fund) continues to lag as the dollar has gotten stronger, plus we see some economies weakening overseas.




The High Yield Corporate Bond Fund is at new highs again and this bullish credit market is a big bright spot for stocks. You can see in the two year chart that the uptrend ended toward the end of last year, which was a warning sign for the early 2018 pullback in stocks. Then we saw a sideways consolidation that lasted until just last month when this broke out to new highs. This looks really good and perhaps stocks are just going to follow along.




The AGG (bonds / F-fund) was up again on Monday but there was some resistance at the top of the short-term descending parallel channel.




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

Tom Crowley


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