TommyIV's TSP Talk Blog

The Federal Reserve brought volatility this week as promised. The first half of the week was anticipation for the FOMC meeting. There were expectations the Fed would show a softer side, but indices slipped heading into Wednesday as with expectations usually comes disappointment. The FOMC policy statement went public late Wednesday, and the initial reaction was an instant rally after it seemed the Fed was planning on slowing its rate hikes as soon as the next meeting in December. But Fed Chief Jerome Powell opened his mouth and even quicker that rally turned into a deep sell-off. All Jerome Powell did was clarify the Fed's stance. Summed up, he laid out the FOMC is entertaining the idea of slowing the pace of interest rate hikes but at the cost of a higher rate end goal than was previously anticipated. Also he promised no guarantees for what to expect in December and the Fed was still watching economic data closely.

The TSP stock funds reached their low for the week Thursday, but the October Jobs report triggered an early rally Friday, the gains were erased mid-day, then another bounce in the late half of the day brought the C and S-fund modest gains on the day to close out the week. The market is in a confusing time where economic success has to be balanced with potential response in monetary policy. The Fed is looking for economic softness to slow inflationary pressures and a strong jobs market is just the opposite.

Speaking of economic softness, earnings season is wrapping up and with most of the S&P 500 companies earnings reported it estimated earnings grew 2.1% in the third quarter. At the end of June the third quarter earnings growth expectation for S&P 500 companies was 9.7%. The underperformance of these companies comes from the two headwinds of higher inflation that raises operating costs and exhausts consumers along with the rising cost to borrow money through higher interest rates.

The next economic figure the Fed will be paying attention to is the Consumer Price Index that comes out this coming Thursday. I would expect volatility to continue into next week. Right now investors see the Fed as hawkish, a year-over year CPI report under 8% may change that sentiment.

Both the C and S-fund were down more than 3%, the F-fund is back to its typical weekly loss (down 0.78% this week) after taking break last week, but the real story this week was the out performance of the I-fund. While U.S. gave up early gains Friday, the I-fund held onto the early gains and ended the day just short of a 4% gain to lift it into positive territory for the week by 1.56% after coming into Friday down more than 2%. A sharp loss in the dollar on Friday was likely a strong contributing factor to the I-fund's success.


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Here are the weekly, monthly, and annual TSP fund returns for the week ending November 4:




SPY (S&P 500 / C-fund) fell off the ladder it was climbing the last few weeks. The volatility of the FOMC meeting brought the ETF back below its 20 and 50-day EMAs it had been trading above for more than a week. Volatility is likely to continue especially with the coming CPI report on Thursday. Investors are unsure how to feel about the Fed and the dead end of the recent rally may dropped the sentiment of would be buyers. But the oscillation in direction can set up good trading opportunities, but being on the wrong side can hurt. The C-fund lagged the TSP funds this week with a loss of 3.31%.




The Dow Completion Index (S-fund) had a similar chart and the current price sits between the 20 and 50-day EMAs with support and resistance trendlines surrounding it. The S-fund closed for the week with a loss of 3.23%.




EFA (EAFE Index / I-fund) joined in the losses of the C and S-fund on Wednesday and deeper into Thursday but was down for the week to a lesser magnitude. The ETF gapped up Friday as the dollar was down sharply and EFA retained its gains and closed near its highs for the day. The I-fund gained 3.94% on Friday alone to lift its weekly performance from negative to a gain of 1.56%.





BND (Bonds / F-fund) turned down this week after falling with stocks following the FOMC meeting. A gap from the previous week was closed, around half of last week's gains were erased, and the ETF is back below its 20-day EMA. The F-fund was down 0.78% for the week.




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

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