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August is usually a positive month for stocks.
Stocks often decline in September as companies begin to issue warnings ahead
of third-quarter results and mutual-fund managers get more work after the light
volume in stock trading that is typical of the summer months. Since 1928,
September has posted by far the worst results of any month, with the S&P index
(the index on which the TSP's C fund is based) losing an average of 1.2%.
Back in August 2001, the C fund dropped 6.27%. The S fund went down 4.32% and
the I fund declined 2.58%. In August 2010, the C fund dropped 4.51%; the S fund
went down 5.59% and the I fund dropped 3.14%.
To put these returns in a longer-term perspective, this means that the C fund
is down 4.62% for the year; the S fund is up 0.21% for the year; and the I fund
is down 7.80% for the year. On a brighter note, the F fund has a positive return
of 7.89% for the year and the G fund is up 2.06% in 2010.
The problem with the stock market is continued concerns about the nation's
economy. Investors are jittery with concerns about a "double-dip" recession; the
amount of debt for the federal government (the federal government’s debt has
soared more than $4 trillion in the past three years, to something in the range
of $13.3 trillion); and the fact that the jobless rate has not declined. With
the August unemployment number that was announced today up to 9.6%, the jobless
rate will have been above 9% for 16 straight months. This means the U.S. is
mired in the longest such stretch of 9%-plus joblessness in more than a quarter
of a century.
That makes investors nervous and the results are showing up in the stock
market returns.
Here are the results of the underlying TSP funds for August and the returns
for each underlying TSP fund so far in 2010:
As you might expect, predictions by stock market analysts about the short
term future of the stock market vary widely. Since 2000, we have experienced two
significant bear markets. The first one, from 2000 to 2002, deflated the
speculative mania pumped up by the arrival of the Internet. Of course, the
attacks on 9/11 did not help matters either. The second, and more sinister, bear
market his us from 2007–2009. When share prices began to fall in 2007, many
analysts assumed the market would hold up better than it did. Despite the
predictions, excessive debt—mortgage debt in particular—was the big factor
driving the market down.
By 2012, Uncle Sam will face a fiscal crunch as the number of baby boomers
reaching 65 (the age for Medicare eligibility) spikes.
But prior to 2012, some are predicting more growth in the stock market as the
financial situation in Europe seems more stable than it did earlier this year.
The November election may have an impact on stock returns also.
The reality is that there is less certainty than usual in the stock market as
a result of the weak economy and political uncertainty about taxes, actions that
may (or may not) be taken by the federal government before or after the November
elections. Uncertainty often leads companies to hold off on expansion,
additional investment in business and hiring new employees.
The result has been a strong bond market (see the F fund results so far in
2010) but a weak stock market so far in 2010. Markets anticipate the future, or
at least they try to do so, and an infusion of optimism could create a sudden
surge in the market.
What do TSP investors think?
TSP investors transferred millions of their dollars into the G and F funds in
July and withdrew millions from the C, S and I funds. That probably reflects a
change of opinion among these investors about the short term direction of the
market. TSP investors withdrew more than $1.3 billion from the G fund in March
and another $1.3 billion from the G fund in April. These investors started
putting money back into the G fund in May (more than $3.2 billion).
The result: You pay your money and take your chances.
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