TSP Talk Blog

Stocks rallied on Wednesday gaining back the losses we saw on Tuesday. I guess the Apple warning on Monday was a fake-out because even its stock got back its losses already, despite no news. The Dow gained 116-points and the Nasdaq's large tech stocks just continue lead and climb. Small caps did well, as did the I-fund despite another rally in the dollar, which has been up in 10 of 12 trading days in February so far.

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The 3-month and 10-year yield curve inverted again this week as the yield on the short-term bond is now higher than the 10-year yield.



That was something that scared the market when it first happened in 2019, but now it is just being ignored. Is that wise?




It seems like we are in a stage in the bull market that reminds me of the latter stages of the dot com bubble, although that was on another level and an argument could be made that that bull market lasted for 20 years, from 1980 to 2000.

The age of the PC and later the internet were developed in that cycle and that was a game changer for the world. We are still growing based on ways to tap into the internet like with high speed broadband giving us communication and video capabilities that we didn't even have in the 90's. But there were some very smart people in the 80's and 90's who saw the internet for what it has become, and the stock market was all over it.

It's arguable that it was as important as the industrial revolution was to the world back in the mid-1700's through the mid-1800's. The world just leapt forward in both cases.

So what do we have now that compares? Does streaming videos and online advertising compare? Should we expect another 9 years of a bull market to match the 1980 - 2000 secular bull market because we can now watch sports or movies on our phones, or stream movies in our homes? Yes those are fantastic, but hardly as impactful to humankind as the industrial revolution or the internet.

So what can derail this stock market bull? I know the market would not be crazy about someone like Bernie Sanders or Elizabeth Warren winning the presidency. I believe that is why the democratic party is trying so hard to dismiss them and get someone in there who is more moderate like Bloomberg, if Joe Biden can't do it. Either way, if the economy remains as strong over the next 8 months as it has been lately, it will be tough to defeat Trump. Despite being one the most hated men in the country (by half the country, and loved by the other half) Trump has the stock market and the economy doing well enough to win reelection, so stocks market may not waiver unless something happens in the interim to change that.

But I don't know if we have 9 more years left of a secular bull market without another world changing invention or breakthrough. If anything we may have a self-inflicted end to the good times by something like the coronavirus, or even an escalation of the divisiveness in the political battle both here and abroad. I think something very bad could happen in this kind of environment. As divided as the country has become, is it a stretch to imagine an outcome that could tear the country apart? I know many of us believe that is at least an outside possibility but we certainly don't want to invest based on that. I'm just trying to figure out how and why this bull market can keep going as it has.

Are very low interest rates the answer? That has helped, but look at Japan and what happened to them in the 90's when they started cutting rates to try to beat an economic slowdown. It doesn't always work. They started cutting in 1990, and went to 0% by 1998. It took decades for their stock market to get back to where it was in 1996 and has still not anywhere near the 40,000 level the Nikkei hit back to those 1990 levels - 30 years later.






Wow, sorry for the rant today. I'm not sure where it came from. It just started coming out. I don't want to pretend I have the answers. I just want to make sure our readers aren't blindsided when the good times eventually come to an end. There was a reason people were jumping off of buildings after the 1929 market crash. Things were so good in the roaring 20's that they never saw it coming.

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The S&P 500 (C-fund) made another new high yesterday but if there was anything negative to say it was that it failed to hold above the prior intraday highs. The resistance is all over the chart, but it is rising and the index just continues to rise along with it.




The DWCPF (S-fund) also made a new high but a possible negative reversal. That may also be a negative rising wedge pattern, but any bearish talk appears to be greatly exaggerated in recent months.




The EFA (I-fund) moved higher and back above its 50-day EMA yesterday. An argument could be made that it is in a bear flag, but others might say it is just another "V" bottom. The dollar was up again so the outside pressure remains.




The AGG (bonds / F-fund) dipped below the prior highs again and is testing that short-term rising support line. This looks like a continuation pattern, but with some strong economic data coming in yesterday, the strength in bonds and drop in yields continues to be a surprise.




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

Tom Crowley



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