Momentum trading, monetary stimulus, and easing trade tensions gave stocks a third consecutive week of gains. Buy it while its hot was the sentiment this week as indices like the S&P 500 continued their extension out the confinements of August trading towards the highs of July. Recession fears diminished to a degree with Chinese officials expressing intent to focus on a trade deal and President Trump postponing tariffs that were to take effect October 1st.
European Central Banks unveiled a stimulus package Thursday to keep the ball rolling. Investors are betting the monetary easing in Europe will persuade the Federal Reserve to follow through with the same in next week’s meeting. The Fed now has pressure from both their foreign counterparts as well as the President who would love for the Fed to erase all cost to borrowing money. But new economic data this week tells us that although economic growth is now accelerating it is still growing steadily. Retail sales came out better than expected, inflation is meeting expectations, and money flowing out of safe-haven bonds and back into companies signals investor are regaining faith in the economy. The Fed has a limited number of rate cuts to use so it worth questioning if a rate cut this month is warranted.
Money flowed out of bonds this week while the 10 year Treasury yield had its greatest one week climb since June of 2013. The F-fund suffered a 1.68% loss for the week; a characteristic of bonds not yet seen in 2019. The money out of bonds seemed to make it in small cap stocks as the S-fund gained 2.28% to outperform the TSP funds.
There was a good amount of repositioning this week ahead of the FOMC meeting. And while stock investors got a spring in their step this week, it’s good to keep in mind that markets are still sensitive to any news not in their favor.
Here are the weekly, monthly, and annual TSP fund returns for the week ending September 13th:
The SPY (S&P 500 / C-fund) flirted with closing the open gap or even testing moving averages Tuesday but reversed to further establish rising support. The price rose from there with investors hearing what they wanted from trade news and monetary stimulus in the European market. The July highs held as resistance and rightfully so as all the buying was on prospects of a trade deal and monetary stimulus at home. The Fed’s decision on interest rates this coming Wednesday will be the deciding factor if traders are willing to buy stocks above the July price. The C-fund was up 1.02% for the week.
The Dow Completion Index (S-fund) outperformed this week and traded at the top a rising trading channel. The index was not held back by highs and still has room to grow before those recent highs are tested. There is still the open gap below but it was a win this week with investors renewed faith in the U.S. economy. The S-fund was up 2.28% for the week.
EFA (EAFE Index /I-fund) jumped up this week thanks to monetary stimulus from the ECB. July highs are now in reach separated by the open gap left behind from that same time in July. Investors will have the weekend to decide if the buying got too extended out of the trading values of just two weeks prior. The I-fund was up 1.99% for the week.
AGG (Bonds / F-fund) broke below its 20-day EMA early in the week but did not stop there. Money continued to flow out of the previously favored bond market and the index eventually fell below its 50-day EMA for the first time this year to fill an open gap left behind in the beginning of August. Any spook to stocks would likely revive this index but the action does signify a change in character for bonds that have had consistent success in 2019. The F-fund fell 1.68% this week. You can follow our F-fund thread on the forum where we keep a closer watch on the current state of the bond 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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