|
Weekly TSP Wrap-up
from
TSP Talk
Last week was a volatile week for the stock market and a strong finish
on Friday solidified some decent gains for both the major indices, and
the TSP stock funds.
The C-fund closed up 2.33% for the week. The S-fund gained 1.64%
and, with the help of weakness in the dollar, the I-fund led the way
with a gain of 2.38%.
The slow and steady G-fund added its typical fractional gain (+0.06%),
and the F-fund had a nice week adding 0.48%. All green.
As great as that sounds, and as encouraging as some of the positive
signs we are seeing in the economy, I am still concerned that this rally
could be running into trouble.
As you probably have heard, the U.S. dollar has been in quite a tailspin
for some time now. When the value of the dollar goes down, it
makes things that it buys more expensive, assuming the worth of the item
you are buying remains stable. It's a major reason why we are
seeing the price of gold go up, for instance, but it is having a similar
affect on stocks.
We've talked about this several times in our daily market commentary,
but for those of you who may be reading this on a website other than
TSPtalk.com and may not have seen
this inverse correlation between the value of the U.S. dollar and the
price of the S&P 500, it may be an eye opener.
Charts courtesy of
www.decisionpoint.com
Seeing this may lead you to believe that
we might actually want to see the dollar continue to lose value since it
appears that stocks do better when the dollar goes down, but remember,
we had said that a weak dollar makes the cost of buying things that
remain stable in worth go up.
When stocks can start moving higher while the value of the U.S. dollar
stabilizes and / or also starts to move higher, that's when I will
believe that the value of the stock market is actually increasing during
a period of economic expansion. Until then, it is difficult to
trust that this rally can be sustained for the long-term.
If this inverse correlation continues, and we aren't really seeing any
evidence that this will change any time soon, you might notice that the
chart of the dollar may have found support in the 75.0 area and if it
holds, could produce a double bottom affect that could trigger a rally
(for the dollar). Unless is it caused by a major positive change
in the economy, this would not be good news for the stock market as you
can also see the corresponding double top on the S&P 500.
The market has had a huge surge off of the bottom of the bear market
back in March and certainly this was not all a result of a weaker
dollar. Stocks had become cheap and the market had priced in
almost a complete collapse of our financial system, which was an
overreaction. The market went down further than would seem
reasonable, but it always does that - just as it always seems to move
higher than you'd expect during a bull market. I suspect we could
be getting closer to that point now. I can't say exactly when
stocks will finally run out of steam, but I can say that most average,
uninformed investors will wonder what happened when it does goes down.
They are usually the last to know.
Good luck, and
thanks for reading. We will be back here next week with another
TSP
Wrap Up.
Tom Crowley
www.tsptalk.com
|
