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TSP Talk: Inflation and bank failures makes the Fed's job tough

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The stock market threw a curve at investors last week. While we were all worried about the jobs report, this week's CPI, and how the Fed will react, we got the announcement of the 2nd largest bank failure in US history in Silicon Valley Bank. The early March losses have disappeared with the 2% to 8% losses last week in the TSP stock funds as this Black Swan hit the market. The funds do remain positive for the year but those gains do feel tenuous at this point. Bonds rallied as yields pulled back sharply.

Daily TSP Funds Return
Whether there are more of these banks out there in similar situations would be good to know, and if there are, this thought brings up the possibility that the Federal Reserve could intervene and not only stop raising interest rates, but possibly cut them, to avoid further damage.

Treasury Secretary Janet Yellen said Sunday that the federal government would not bail out Silicon Valley Bank, but is working to help depositors who are concerned about their money. Silicon Valley Bank was the US's 16th largest bank. Elon Musk chimed in to say he was open to the idea of buying the collapsed SVB and turning it into a digital bank.

A Fed intervention would almost certainly trigger a snap back rally, but in a technically damaged market that is not always a permanent solution, and the Fed has already been dealing with the excessives they've thrown at the economy, most recently because of COVID - and they may be reluctant to intervene as freely as they had in the past.

Some of the stocks index charts appeared to be on the verge of recovering from the February pullback, but that was quickly quelled as we saw technical breakdowns that may not be repaired easily.

So there are probably two key questions for us TSP investors. If you're in stocks, should you get out in case things get worse? Or, if you've been out of stocks, is it time to start buying?

In a matter of days this S&P 500 chart turned from a buy the dips look, to a sell the rallies approach with the support breaking and ...

... the January breakout on the verge of a breakdown back below that old resistance.

The chart of the small caps chart DWCPF could not have looked more textbook bullish with the inverted head and shoulders pattern breaking out in January, pulling back to that neckline while forming a bull flag. But then...

... this happened. This is broken and it is certainly going to shift my approach. The small regional banks that populate this index, and the Russell 2000 Index, have been taking the brunt of the selling.

Having been knee deep in the 2008 financial crisis bear market, I remember all too well the Fed's attempts to fix the situation, and the big snap back rallies that ensued but eventually failed. It does set up good trading opportunities, but with our limited transactions and noon ET deadline, it is certainly a tough endeavor. However, as we saw in 2008, the buy and hold strategy took its victims as well with losses near 40% for the three TSP stock funds.

As for bonds where yields had been moving higher on the inflationary issues and Fed tightening, they could face declining yields if the Fed is planning any kind of intervention. Friday's action certainly factored that as yields came down precipitously, raising bond prices - and the F-fund.

The dollar also fell sharply on the possibility of cheaper money, and the UUP fell back below its 200-day EMA.

This could be a headline driven market for a while as assistance and new failures will be the new catalyst, perhaps putting inflation on the back burner.

And speaking of inflation, we will get the CPI reports on Tuesday, and the PPI on Wednesday.
Admin Notes:

I'll be gone: Next week could be tricky for me as I have been called for jury duty. Because the courts are 90 miles away from where I live, and I don't know how long I might have to be there, I made reservations at a hotel and decided to stay there a few days either way, just in case. The problem comes if I do have to serve on a jury starting on Tuesday (thought it was Monday). I will really be hampered during the day, not only because I won't be able to watch the market, but I may not be able to send alerts if any of our services require it. That would include TSP Talk Plus, RevShark, and Intrepid's services. And of course if there is a trial of any length of time, it's a bigger problem and I will have to figure something out.

TommyIV, who writes our weekly Wrap Up, may fill in for a day or two writing my daily commentary, but it is not likely that he will be able to send alerts as he works on his Last Look reports around that same time. I can only hope for the best.

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The S&P 500 (C-fund) had been acting very erratically making it tough to find any short term trend. We saw a false breakdown to start March, then a failed breakout a couple of days later. Whoever is running the show was doing a great jobs of making both the bulls and bears feel uncomfortable. I like to think that I see what they're trying to do and try not to let them fool me, but they did. The folks who have been calling for crashes all year took their punishment all year and as late as just few days ago as they were on the wrong side of the fence. But as of Friday's close, if they stayed the course, they became in charge.

The DWCPF (S-fund) has been a disaster, and another great chart pattern bit the dust. I mentioned this action in the top section.

The EFA (I-fund) chart also looked very good and looked like it was ready for a nice bounce off support levels -- until that negative reversal on March 6th. Now it is down just below some key support and needs some help.

BND (bonds / F-fund) gapped up on Friday, and who would have thought that filling in the right shoulder of the head and shoulders pattern would turn into a bearish situation for the stock market? It took a black swan event to get the relief rally in bonds.

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

Tom Crowley

Posted daily at

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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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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Yahoo Finance Realtime TSP Fund Tracking Index Quotes