For TSP'ers, this may be one of the toughest years to decide which fund to be in. Historically when one of the stock funds went up, the others went up as well, but maybe not to the same degree. This year we've been big differences in the daily, weekly, and months gains between the C, S, and I funds making it a meaningful and consequential choice. Yesterday was another good example with the S-fund gaining over 1% on the day, while the C and I funds lost 0.51% and 0.63% respectively, after a late sell off in stocks yesterday.
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Daily TSP Funds Return
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That 0.63% I-fund loss was actually referring to the loss in the EFA ETF, which the I fund tracks fairly closely. We'll see what the TSP actually does with their I-fund share price. Often late moves in the US stocks don't get priced into the I-fund until the following business day, so we'll see. I am obviously writing this before the 9 PM posting of the daily share prices by tsp.gov.
They certainly aren't make it easy on us - the bulls nor the bears, as big sell offs are followed by big rallies, that may or may not hold into the close or, like yesterday, some indices rallying and some falling. That is making fund picking that much more important.
If you're into buy and holding a very diversified account, it probably doesn't matter. While some funds are going up and some down, you get a return of something in between. That's fine, and boring, but you'll never catch some of the monster runs that these funds have once in a while, and right now the S-fund may be in the midst of one of those after the C-fund had one earlier in the year.
The late sell off in big tech again yesterday took away a 1% plus gain in the C-fund by the close, and it ended with a half percent loss. That's quite the rug pull. But this action has been the compete opposite of the spring action when big tech was leading and the smaller and more broader indices were barely staying above water.
You can see this in the market breadth as many more stocks were up yesterday than down, despite the losses in the S&P and Nasdaq. We kind of knew this was likely to happen at some point, but when and how long it can last is still questionable.
This chart shows the ratio of the S-fund to the C-fund this year. When the line is falling, the C-fund is outperforming. When the line is rising, the small caps are leading. And when it's flat they are performing equally. You can see that the C-fund had the advantage almost the entire year, but once it turned around earlier this month, that S-fund made up a lot of ground in a hurry. Now it's back near the range that it was in from February to early July, so will it flatten out again, or do the small caps have more ground to make up? Through yesterday the S-fund has outperformed the C-fund by more than 5% in July.
It has been ugly and it looks vulnerable, but maybe it is time for the C-fund to step up again, and if you look above at that same chart going back several years, the trend that worked was to jump back into the C-fund after a pop in the small caps. If that descending channel can get taken out on the upside, perhaps the S-fund can finally have a sustained advantage, but if the channel holds it means it could be time to take profits in the S-find and start buying the C-fund again. I don't know what is going to happen, but I will be watching this ratio for clues.
We'll get the June PCE Prices reports this morning. We have a clear trend of lower prices indicating that inflation has been less and less of an issue this year, but if this happens to turn up today, watch out. When stocks fall for no apparent reason, a reason does tend to eventually present itself. Whether that is a recession brewing or inflation coming back, who knows? But after what we've seen lately in the stock market, it wouldn't be a surprise if we start hearing some bad news.
Next week will be a busy one with big tech reporting earnings: Microsoft reports on the 30th. META on the 31st, and Apple and Amazon on August 1. We also get the jobs report on Friday next week, and there's an FOMC meeting on Tuesday and Wednesday. No rate cut is expected at this meeting although the odds of a cut did tick up a bit to 7% this week.
The S&P 500 (C-fund) has pulled back quite a bit in the last two weeks. It has nearly filled in that open gap which has been a potential target for weeks. Perhaps that was the goal of this pullback or maybe 1the 00-day EMA is going to get tested. It last tested the 100-day EMA in April and it held. The last time the 200-day average was tested was in November 2023, and that is a whopping 350 below yesterday's close.
DWCPF (S-fund) gained over 1% yesterday but it was up well over 2% at the highs, so it was a bitter sweet gain. I am still on the fence about whether that is a bull flag or not, which would tend to break to the upside, or if this still need to do some backing and filling of those open gaps below first. It's had a very good month but I can't say this doesn't look vulnerable.
The EFA (I-fund) pulled back again yesterday and it is now testing the bottom of a large trading channel and it is also testing the 100-day EMA, something it successfully tested in April
BND (bonds / F-fund) was up yesterday, catching a little bounce off the 20-day EMA after filling in that large open gap on Wednesday. This could be a place for it to hold support, but the PCE prices report today may have other plans for the bond market.
Thanks so much for reading! Have a great weekend!
Tom Crowley
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