TSP Talk Blog

Stocks flip flopped Monday's action on Tuesday with modest gains basically getting back Monday's losses in the case of the indices that were down on Monday, while the small caps of the Russell 2000 declined after Monday's big rally. The reversal in the price of oil had a lot to do with that as Saudi Arabia downplayed the impact of the strikes on their oil fields. Most of the gains on the day were realized in the final hour of trading.

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Although it felt more like jockeying for position in front of today's FOMC meeting with the back and forth action, it was a quiet day that probably had more to do with a pullback in the price of oil after Monday's big rally.




The Transportation Index was one a few indices that were down on Monday and Tuesday, and after the bell yesterday FedEx was down about 10% on earnings in after hours trading, increasing the chances of a 3rd straight down day for the Transports... unless the Fed changes that. it

The FOMC meeting starts today and we'll get the policy statement and decision on interest rates this afternoon. The chances for a rate cut according to the Fed Funds Futures has dropped again to a near 50% chance of a rate cut this week, meaning it's basically a coin flip's chance whether they will cut rates today or not. Very peculiar and likely caused by "repos" by the New York Fed, changing the chances of a cut dramatically since last week's readings were near 90%, and a recent CNBC poll showed 100% of respondents expecting a cut today.

A non-cut could be data driven as we've seen some good economic data and higher inflationary data come in, and that may be why the odds have decreased, but of course politics will also play a part in the reaction, whichever way they go.

If they cut rates some will say Powell gave in to President Trump's pressure to cut rates. And if they don't cut it may be looked at as defiance to Trump's persistent requests for rate cuts following the lead of former New York Fed who said publically, "Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a clear signal that if the administration does so, the president, not the Fed, will bear the risks — including the risk of losing the next election."

I'm not smart enough to know if we need a rate cut or not, but I do expect one only because I don't think any Fed chair wants the economy or the stock market tanking on their watch. Because the stock market seems to have priced that in already, I'm not sure we'll see much of a rally on the news unless they add something that we don't already know.

Let's stop the speculation and see what happens and I'll keep the analysis brief since anything can happen.

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The S&P 500 (C-fund) didn't rollover after the mini breakdown on Monday but neither the bulls nor the bears seemed willing to press their bets in front on today's FOMC meeting. The early September momentum has slowed and there is a big gap below that needs filled, but again the reaction to the Fed could overrule any logical movement - at least this afternoon.




The S-fund was flat on the day and possibly creating another "flat top" like formation. It could be construed as a bullish flag, but a similar formation in July led to a pullback.




The EFA (I-fund) had a good day creating a positive outside reversal day and holding at the bottom of the rising blue trading channel. There's gaps all over the chart so some volatility in either or both directions could go a long way in cleaning up the chart.




The High Yield Corporate Bond Fund made yet another new high and that is keeping the stock market buoyant with cheap money still readily available.




AGG (bonds) rallied again as yields came off their lows. It wouldn't surprise me to see this hit 112.80 tomorrow, where the 20-day EMA is meeting the top of that red rising channel, and the bottom of the blue rising channel. What happens after that may be part of an emotional Fed day move, but getting over that level would be bullish for bonds and the F-fund.




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Thanks for reading. We'll see you back here tomorrow.

Tom Crowley


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