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TSP Talk Weekly Wrap Up

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A surge in bond yields shook markets up this week increasing volatility and pushing stock and bond prices down. The normally 'safe' investment into bonds (F-fund) was down simultaneously with more risky investments like stocks (C, S, and I-Fund). Well then where are people putting their cash? The answer isn't obvious and the answer may just include more cash holdings. This could be the case as a change in market character has investors reevaluating the best place for their money.

Free money through government stimulus and easy money through the Federal Reserve's dovish monetary policy has driven pumped money into the economy and eventually into investments. Up until the last couple weeks, low bond yields made stocks the only place to get a 'real' yield on your investment. This has driven stock prices higher for nearly a year. But with all this new money introduced to the economy, bets on inflation have increased. Inflation and long-term bonds do not mix well. The inflation bets have caused a sell-off in bonds and as bond prices fall, their yield rise. Yields have increased enough to grab investors attention looking for another alternative than stocks that have grown too expensive. This is all happening while data suggest an improving American economy, a dovish Fed, and expectations for more stimulus to come.

The market is experiencing a change in character but its unclear what will happen next. There are a couple different types of investors right now: the sensible and the exuberant. The sensible see the higher bond yields and appreciate a lower risk asset at a reasonable yield. This investor is likely to move cash out of stocks. The exuberant has been hyped on the rise of bitcoin, Game stop like trades, and the general momentum of markets. The exuberant sees this week as a buying opportunity in stocks and want more of the same.

Eyes will be on the Federal Reserve to take action. The Fed has been extremely dovish since last year so for it to keep up with the status quo we might expect to see them increase their bond buying to artificially 'correct' the yields. Another option is to fight inflation with tighter monetary policy; this would not conform to the Fed's recent tone. Or the Fed could do nothing and let things correct themselves from here. This is a very sensitive choice and the wrong one could have serious consequences to the economy.

Outside of the G-fund, the TSP funds were all down for the week. The S-fund fell 4.29% this week but managed to end February up 5.21% for the month. Bonds were down 0.39% for the week to be the lesser of the losses but was the only loss for the month of February.




Here are the weekly, monthly, and annual TSP fund returns for the week ending February 5:




The SPY (S&P 500 / C-fund) moved around this week and action wasn't steady intraday. Tech stocks struggled the most for the index but recovered Friday while the index was closed down after a late day selling. We saw a similar pull back late January and that ended at the 50-day EMA where the index about found its lows on Friday. Normally the 50-day EMA would be a great place to buy but the change in market character along with a new month may have some waiting out the market's next move. The C-fund was down 2.41% for the week.




The Dow Completion Index (S-fund) did not quite reach its 50-day EMA where an open gap sits but the index did not tested its 50-day EMA is some time. This could be a positive or a negative. The index increased its momentum in the first half of February and in turn fell harder for the second half. The S-fund lagged the TSP funds with a 4.29% loss for the week.




EFA (EAFE Index / I-fund) was able to trade in a range for the week mostly above the 20-day EMA but eventually slipped Friday to fall down to its 50-day EMA where it closed. The index tested its 50-day EMA in January and did recover. The I-fund was down 2.79% for the week.




BND (Bonds / F-fund) moved around day to day but its real hit this week came from a sell off on Thursday that drove the index to a price not seen since last April. The index recovered some ground of Friday to catch up some of the losses for the week. The F-fund lost 0.39% for the week.




Aside from the liquidity issue in bonds that cause a quick crash and recovery in bonds during the pandemic crash, the index has not been below its 200-day EMA since November of 2018.




Good luck and thanks for reading. We will be back here next week with another TSP Wrap Up. You can read our daily market commentary at the Market Comments page. If you need more help deciding what to do with your account, perhaps one of our Premium Services can help.


Thomas A Crowley

www.tsptalk.com
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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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SPY (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
BND (F Fund) (delayed)

(Stockcharts.com Real-time)

Yahoo Finance Realtime TSP Fund Tracking Index Quotes