The strength in the bond market continues and that is pushing yields lower, giving the stock market reason to hang in there despite some overbought conditions. The major three indices were up modestly, while small caps were down but holding firmly at a key moving average. The action has actually been quite boring, and a boring stock market tends to favor the bulls, but it is vulnerable to any bad news at these lofty levels.
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Daily TSP Funds Return
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We get a 3rd quarter GDP estimate today and tomorrow's PCE Prices and the Personal Income and Spending reports could shake things up if not favorable to inflation, but with the Fed basically on hold, earnings season in the rear-view mirror, and the calendar turning to December, historically the best month for stocks, the bears have their work cut out for them.
That wasn't the case last year, however. In 2022 we had a similar solid, inflation data driven bottom formed in October, and that led to a decent rally into the end of the year, but there was a hiccup in December. This year's rally may feel different, and it may be, but just a reminder that December is not always a breeze for the stock market, as you can see in the chart below. The S&P actually peaked on December 1st, then started a big double top pullback closer to the middle of the month, and the S&P ended the month down almost 6%, and the Santa Clause rally never really manifested until January.
Whether that can happen two years in a row, I don't know.
If yields keep falling, maybe so.
The 10-Year Treasury Yield fell to another multi-month low yesterday and that is pushing the F-fund up. Bonds are certainly in line for some bullish action, but if they keep rallying with yields falling, will stocks do even better?
Same for the dollar. It keeps making lower lows helping prices stay elevated in stocks and commodities. Have you seen gold lately?
DWCPF (S-fund) is doing something interesting. It has rallied dramatically off the October lows, but as we see in 2023 year to date chart below, it has had these kind of runs, and even better, more than once before. What is happening right now is that it has pushed above the 100-day EMA (orange line) and has been holding despite the set up for a pullback. That 100-day EMA seems to be an important average for this chart as it holds as support and resistance often, until it breaks, and the move after the break can be explosive. That might be telling us that the next big move is up again for the S-fund, but what about those open gaps below?
The open open gaps created in November are huge as far as gaps go and they almost certainly will get revisited again, but as you can see in this 2023 chart, sometimes the S-fund can run a long way before it does come back and fill those gaps. But, it's important to remind ourselves that all of those old gaps (blue) did eventually get filled. It was a matter of when, not if.
The death of Charlie Munger yesterday, Warren Buffett's right hand man at Berkshire Hathaway, reminds us that money isn't the most important thing in life. He lived to be 99, and we should all be so lucky, but money can't buy everything and you can't take it with you. On the other hand it also reminds us that, if healthy, retirement that could last 40 years if you plan to retire in your early 60's. Keep saving... but not obsessively. You have to enjoy life as well. :)
The S&P 500 (C-fund) may be hitting a mini double top here but the sideways action in the face of extreme overbought conditions is compelling. The negative reversal in the VIX yesterday may be suggesting that a new leg higher is coming here, but I just can't get myself to go all in with those large open gaps below after a 10% move off the lows. That may be the wrong approach, but the rubber band is a little too stretched for my liking.
EFA (I-fund) was flat yesterday despite another in the decline in the dollar, but it was BND (bonds / F-fund) that led the TSP funds yesterday as it breaks through another level of resistance. Again, those gaps could get filled at some point, but if they don't get filled right away, it could be a long wait - but they almost always get filled.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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