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TSP Talk: Worst first half since 1970

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The 2nd quarter ended with a thud, and while we all know there were a lot of issues in the first half of the year, the action yesterday included some end of quarter window dressing, positioning for the 3rd quarter, and a pre-holiday impact, and the volatility could continue today. The Dow lost 254-points but it was really all over the place yesterday and that just happens to be where it landed when the bell rang. Bonds rallied as yields dropped, and commodities continue to slide as the economy braces for a recession.

Daily TSP Funds Return
Where were you in 1970? That was the last time that the S&P 500 started the first half of the year with a 20% plus loss. (The Nasdaq is down 30%) Ouch! The good news... 1970 ended the year flat.

The bad news, the economy and the stock market didn't really bottom until about 1974 and there were major swings in the stock market the whole time so it was a market timer's market, and / or a dollar cost averaging market.

The news yesterday was the yields on the 10-year Treasury fell back below 3% and below some recent support levels.

That may not be a bad thing, but the news that the Atlanta Fed lowered their GDP number for the 2nd quarter down to negative 1%, which would be a second consecutive negative quarter, and hence all but the definition of an official recession. That may have been a jolt to the market outside of the end of quarter window dressing yesterday, but with commodities (DBC) and energy prices (XLE) really starting to pull back, maybe the bond market is telling the Fed that they can slowdown on raising interest rates?

We are about four weeks in front of the next FOMC meeting where most are expecting another 0.75% rate hike, but if they do say something to the effect that they don't need to be so aggressive because of prices coming down on their own, the the market could find a bottom? The jobs report next Friday could be a big one as the Fed wants to see the unemployment rate go up as a sign that their rate hikes are working.

My prediction was that the market would see new lows all the way into August / September, but don't bet on that. That's just based on historical precedents and seasonality.

In the short term we saw a relief rally fail this week but it was a pre-holiday week and the end of a quarter so it's tough to judge. Everything could flip back next week because once again we are seeing some extremes in the indicators, while some are still only neutral. It's a bear market and making long bets (bets on stocks) is more dangerous. I know I can't help myself wanting to buy when the world can't sell fast enough, but the timing is very tough and catching the lows takes a lot of luck, and buying too soon can be painful if you're wrong.

I had raised some cash (G-fund) over the last two weeks but planned to sell more on any rally this week, but guess what? No rally yet this week. The market can be cruel.
I'll leave the July seasonality up another day but don't forget that we are in a bear market and the average returns and percentage of times positive numbers that we see are shaped more by the typical bullish year rather than the rare bear market years. July 1st is one of the best days of the year historically so we'll see how much that really means by the end of the day.

Chart provided courtesy of

The markets and the TSP will be closed on Monday so I will be back on Tuesday.

The S&P 500 (C-fund) traded in a wide range yesterday and closed about where it opened which was well off the lows, and the highs. There is another very small open gap near 3700 that could be a target, but if we get in the weeds, the 'stealth' open gap is closer to down near 3675 - the close on June 17th. The open gap above 4000 is still there, but if it happens to get back up near that area, it would have to climb above the large trending channel to get there as resistance continues to move lower.

The DWCPF (S-fund) loses more than 1% for a third straight day and it looks like it wants to test the previous lows. It's in a downtrend and in a bear market and selling the rallies has been the best strategy for months. The hard part can be knowing where to sell since the last rally didn't make it up to resistance, so while it sounds easy to sell rallies, the market never makes it that easy.

The EFA (I-fund) broke down from the bear flag that we had been watching but it closed well off the lows and a pullback in the dollar helped it outperform the U.S. funds yesterday. It still looks ugly here if the bear flag plays out, but I suppose there is a small chance that the low near 61 could hold.

BND (Bonds / F-fund) rallied yesterday on the decline in yields and the test of the overhead resistance was interesting. The resistance held but that is something to keep an eye on. If that and the 50-day EMA can get taken out, we could finally see a real bond market rally. But expecting resistance to break in a bear market is tough. I'll believe it when I see it.

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Thanks for reading. Have a great holiday weekend!

Tom Crowley

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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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