Stocks rallied this week recovering some gains lost in recent sell-off. The major indices traded less volatile than the last two weeks though volatility was still greater than where it was prior to the sell-off. The action was similar to the weeks prior to the sell-off as if investors quickly got their confidence back in this market. Traders took the 10% correction and the successful support of long-term trend lines as an opportunity to buy.
Consumer reports this week provided evidence that inflation is on the rise. Interestingly the market rallied following the report Wednesday despite that the increase in inflation was blamed as a contributor to the initiation of the correction. The worry is that a rise in inflation would give the Federal Reserve incentive to increase interest rates faster to lower the rate of inflation which would in turn provide less stimulus to the market. It seemed investors were more focused on recovering their losses from the correction than think about long-term valuations of stocks. This week was the beginning of the second half of a V-shaped bounce so traders were riding the momentum. Now I wonder if investors are confident enough to continue buying in a market that had recently turned on them.
Bonds continued to fall this week as yields rose to just under 3% in the 10-year U.S. Treasury. With yields up, there may be a buying opportunity for investors in bonds to add more stability in their portfolios as profits in stocks have become less of a certainty.
All the TSP stocks funds were up more than 4% this week with the S-fund outperforming. The F-fund lagged with a slight loss with yields up.
Here are the weekly, monthly, and annual TSP fund returns for the week ending February 16th:
The SPY (S&P 500 / C-fund) cut right through its 50-day EMA this week as stocks rallied. This was a bit of a shock to investors themselves who may have expected more trouble. However, the momentum was strong enough to disregard the trend line. This is attractive to investors who see that there is still strength in stocks coming off the 10% correction. The C-fund was up 4.38% for the week.
The Wilshire 4500 Completion Index (S-fund) outperformed the TSP funds this week and it too now sits above the 20 and 50-day EMAs. The index traded similarly to large caps but with slight more magnitude.
$IEE (EAFE Index / I-fund) traded up to its 20 and 50-day EMAs after coming off prices just off its 200-day EMA at the bottom of the chart. The index has traded very similar to U.S. stock indices so what has been happening in U.S. stocks has had an impact on a global market scale. The I-fund was up 4.28% for the week.
AGG (Bonds / F-fund) was down with yields up this week but the index came recovered early losses in the week as yields peaked mid-week and support lines held in the index. The F-fund was down 0.22% for the week.
This is AGG at a three year window and it seems the bond index is falling right into rising support that has held strong sell-offs in bonds before. Bonds have been in a bull market for years so whether this rising support prevails will be a telling sign of the future of the bonds market.
Good luck and thanks for reading. We will be back here next week with another TSP Wrap Up. You can read our daily market commentary at the Market Comments page. If you need more help deciding what to do with your account, perhaps one of our Premium Services can help.
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