TSP Talk – QE3

Stocks rallied last week after the Fed announces the start of quantitative easing #3, or QE3. The Dow jumped 207-points on Thursday after the announcement, and followed up with more gains on Friday.

Here are the TSP fund returns for the week of September 11 through September 14, plus the up to date annual returns.

The S&P 500 blasted through the top of the already rising trading channel on high volume. This could be an exhausted top, but clearly with $40 billion being pumped into the system each month, the dollar will be weakened and stocks will benefit.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Here is what has happened to the dollar (via the UUP ETF) since mid-summer as expectation of QE3 became more apparent and finally the announcement.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I posted this chart last week to show how the S&P 500 benefited from QE1 and QE2, but I also noted below that both times there was a pullback just after the announcement before the positive trend really kicked in. Perhaps it was investors digesting the fact that we wouldn’t need QE if the Fed didn’t see things were going poorly. But the money pumping into the system, which weakens the dollar, eventually sends prices higher.

Oil moved over $100 a barrel temporarily on Friday. As we said, QE weakens the dollar and prices in almost anything traded in dollar will have the wind at its back.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Whether $100 a barrel oil will hurt the economy any more remains to be seen. It seems like the $110 to $115 level is where consumers start to react and cut back on driving as that’s when gasoline starts moving more above $4 a gallon.

Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.

Tom Crowley
Weekly Wrap-Ups Archive
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The legal stuff: This information is for educational purposes only! This is not advice or are commendation. 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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