TSP Talk Blog

Stocks actually opened lower on Thursday and the pre-market futures were fairly negative, but when that opening bell rang, everyone turned into bulls. The Fed's "no more rate hikes" policy created a failed rally on Wednesday but for some reason it stuck on Thursday. Perhaps brokers were calling their clients and telling them they need to buy, buy, buy? I don't know. The Dow gained 217-points and small caps, which were struggling for a couple of days, were the darlings again, along with tech stocks.

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I suppose the action is not too surprising given the the Fed is such a key factor when it comes to opening and closing doors on stocks. We saw what they did to the market last fall when the were tightening. There was a lot of backlash and whether they succumbed to pressure or eventually came to the conclusion that they were going too far, I don't know, but they have reversed course and that does change things.

Yes, stocks are still overvalued when we look at price / earnings (particularly margin adjusted) but as we talked about the other day, low rates makes it tough to do anything else but buy stocks when it's tough to get a decent yield anywhere else.

The outcome is all but certain the way I see it, but the timing is the big question. Overvalued stock prices eventually get valued correctly, then undervalued, and then the cycle repeats. How long does the market rally on this new dovish Fed? A day, a week, a month, a year? Who knows? It's about fear and greed at this point. Like the financial crisis of 2008 that we talked about this week, it seems to take longer for the market to react than you'd expect, but then the downside is more severe then you'd expect as well.

I am writing this on Thursday after the market close, and the first Thursday and Friday of NCAA's March Madness is basically a holiday in my household so I am going to make this quick today.

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The S&P 500 (C-fund) had come back and tested the old breakout level on Wednesday, but it held and has since rebounded again to a new high for 2019. That last push was thanks to the Fed but can it continue since the Fed interrupted what looked like was going to be another pullback?




The small caps were ignited again after a couple of bad days earlier in the week. The Russell 2000 has held above the 200-day EMA this week, but that 200-day Simple average has been more stubborn.




The yield on the 10-year Treasury Note fell to a low of 2.50% yesterday before closing at 2.537%. It's a new low but when you compare it to 10-year yields in Germany, 0.047%, and Japan, -0.043% (yes that's negative) our 10-year notes are still catching a bid keeping the bond market and the F-fund up. (Yields move counter to bond prices.)




The dollar bounced back after testing the lower end of that longer-term rising channel (red). It had broken down from the small channel (blue) before that, and yesterday's high was at the bottom of that old channel so we'll see if that remains resistance now that it is below it.




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Thanks for reading. Have a great weekend!

Tom Crowley


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