Stocks had their worst weekly performance since December, triggered by surprise tariffs that followed a hawkish Fed rate cut. Action was quiet ahead of the Fed decision to cut rates a quarter percent. The size of the cut was not a surprise but the communication by Jerome Powell in the press conference left traders confused and unsatisfied. The message was basically a warning that the rate cut was a mid-cycle adjustment not the start of an extensive easing program.
Stocks began to regain ground Thursday but a tweet by President Trump threatening an additional tariffs on 300 billion dollars of China goods sent stocks tumbling the last day and a half of trading. Trade negotiation between the U.S. and China were thought to be on a positive track. The surprise of new trade tensions had investors selling who were already discouraged by the Jerome Powell’s press conference.
The Fed’s rate cut was partly influenced by the uncertainty surrounding trade disputes. The Fed was in a sense taking insurance in case trade disputes bled into the already slowing economy. The new tariffs have investors betting that there is nearly 100% chance of another rate cut at the next FOMC meeting in September; the likelihood of another rate cut was 51% on Wednesday.
Bonds spiked with investors retreating from stocks to less risky assets. The F-fund largely outperformed the TSP stock funds with a 0.98% gain. Both the C and S-fund were down more than 3% while the I-fund fell 2.64% for the week.
Here are the weekly, monthly, and annual TSP fund returns for the week ending August 2nd:
The SPY (S&P 500 / C-fund) broke technical support Wednesday following the FOMC press conference. The attempt to fix the damage was met by the tariff tweets which by Friday had pushed the index below its 50-day EMA. An open gap from the end of June was filled and there is a second not far below the current price. The C-fund was down 3.07% for the week.
The Dow Completion Index (S-fund) had similar action to SPY but with larger downside magnitude. The price currently sits between the 50 and 200-day EMA. Earnings are dried up and August is a slow month. Its hard to think of what could recover the recent losses other than maybe another tweet by President Trump of the opposite manner. The S-fund lagged the TSP funds with a loss of 3.51%.
EFA (EAFE Index /I-fund) was with the U.S. indices in the sell-off. The index opened below its 50-day EMA Tuesday and was never able to trade above it again the rest of the week. Rather the index fell more with the tariff situation to fill open gaps left from June. There is one more gap to fill but the 200-day EMA price was the ending point for the index for the week. The I-fund was down 2.64%.
AGG (Bonds / F-fund) had mixed action for the first half of the week. The tariff tweet had investors retreating to assets like bonds leading to a 0.65% single day gain for the F-fund Thursday. Rising trend lines marked the highs for the index but will investors regain the confidence to return to stocks after the weekend. Its hard to find a reason to buy stocks right now besides the idea that they may be oversold. The F-fund led the TSP funds to gain 0.98% for the week.
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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