TSP Talk Blog

It's incredible how much power one person can have over the stock market. The Federal Reserve Chairman Jerome Powell spoke, and the stock market soared. After a poor start to the week for stocks (indices down almost 2%) the Fed stepped in and declared that their measures against inflation have been working, and they will be able to slowdown the pace of the interest rate hikes. And just like that, the morning losses turned into an explosive afternoon rally, and that's how November ended.

Daily TSP Funds Return More returns

Notice he didn't say the Fed will stop raising interest rates. They will just slow the size of the increases. That probably means more pain for the economy and a recession in 2023 but I suppose the market had been pricing in higher interest rates, even though we've seen "pivot" headlines off and on for several months now.

My TSP Talk Plus system had a sell signal going into this week and I felt pretty good about being on the sidelines on Monday, Tuesday, and half of Wednesday, but how quickly things change. This seems to happen often enough that I do become paranoid that these moves, whether stocks move sharply higher or lower, are designed to get us "dumb money" to lean the wrong way, and / or do the wrong thing. These giant moves rarely go the way the charts would suggest they go, but I suppose that is why these triggered moves get so large, because of all the people leaning the wrong way and trying to make adjustments.

As you might expect with the Fed easing on interest rates, the Yield on the 10-year fell, as did the dollar.




I posted this chart of the S&P 500 in Wednesday's commentary, showing my cockiness by not even displaying the open gap that was above 4000 which is off this chart. I had talked about the 4070 area often in the daily commentary charts (down below) but leaving it out of that chart yesterday was probably the tell that it was the next area to get taken out.




And here is that daily chart showing the bullish flag, that I was trying to call an F-flag, breaking out and hitting that target. The open gap down near 3800 is still there and always a potential target, but how far can the bulls take this new outlook from the Fed before that's on the radar again? If this was a fake out move, there probably won't be too much more upside. But if it's a pivot, maybe the bulls will just keep buying?




So the S&P 500 went from being down over 2% for the week before the Fed spoke on Wednesday, to up 1.3% with yesterday afternoon's gain, but the action made it feel like more than that. The question now is if the Fed's comments ends the bear market and triggered an all's clear for stocks. Or if what looks like an impending recession due to the weakening economy will stop any further upside for stocks. They will continue to hike interest rates - remember the Fed has not said they are stopping, just slowing down the increase of rate.

I thought it was interesting timing that this headline came out from Bank of America economists yesterday:

Expect a U.S. Recession That Will Ravage Markets and Could Send Stocks Spiraling Down 24% Next Year, Bank of America Says

"Bank of America economists expect the US to slip into a recession in the first quarter of 2023.
"That will become the dominant story for markets next year, the bank said.
"The S&P 500 could plunge 24% from its current level by the end of the year, strategists warned."

Is this the worst timed article ever or is it all part of the game to get us leaning the wrong way... or do they really have a point? Here's a link to that article, if interested:

https://www.entrepreneur.com/business-news/bank-of-america-recession-will-ravish-markets-in-early-2023/440150


Admin note: I am still in travel mode taking care of some personal business and when I head back home depends on when I get things done, and the weather. So, depending on which day I travel, the commentary may have to be brief that day. Sorry for any inconvenience.

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The S&P 500 (C-fund) chart was posted above:

The DWCPF (small caps / S-fund) is similar the S&P 500 chart except, as we talked about the other day, it is lagging so it is still not hitting resistance or filling in the overhead open gap.



The EFA (I-fund) was up nicely but lagged mostly because the overseas markets were closed by the time Powell gave his speech.

BND (bonds / F-fund) blasted off with yield plummeting. There's resistance and an open gap not far above the current level.



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

Tom Crowley


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