TSP Commentary for 01/21/20

This is your TSP Watchdog UPDATE for the week ended January 17, 2020.

PROLOGUE:  My apologies for a one-day delay in getting this week’s commentary out.  We discovered late this morning that the group email that was set to go out overnight was not actually sent.  After reviewing the situation, it appears that yours truly set up the email incorrectly.  I’ve only done this every week for 7 years – so it is easy to understand how I could make a mistake like this – NOT!  The good news, or at least mitigating news, is that there is no significant action necessary in the current environment – so no one should be harmed.  Again, my apologies…

The markets rallied to (more) new all-time highs this week – with the S&P 500 gaining 1.97%, the Dow up 1.82% and the NASDAQ +2.29%.  (the NASDAQ is already UP 4.6% year-to-date).

This week’s gains build on the market’s strong start to 2020.  Already, the “first of the year” data is strong:

First 3 days of trading:                    +0.48%
First 5 days of trading:                    +0.69%
First 10 days of trading:                 +1.81%

(All market data provided by Yahoo! Finance)

We have only to see how the full month of January comes in to complete the “off to a strong start” analysis.

Remember, there is a correlation between market gains in January and market gains for the full year.  It is not an absolute correlation, and it has proved inaccurate a few times in recent memory, but more often than not, how prices move early in the year is a predictor for the full year.  Stay tuned (and don’t bet the farm on it!), but it makes for good water cooler conversation (if you discuss such things at the water cooler…or if you even have a water cooler in your office).

Three news items during the week seem to be driving investors:

  1. The Phase I trade deal with China was signed on Wed.  While this is not a comprehensive deal, it is a first step, and, hopefully, it will mark the end of the tit-for-tat tariff battle between the two largest economies in the world.
  2. The week featured some solid economic data – most notably December housing starts that were much better than expected.
  3. Q4 earnings season is now in full swing, and several large banks reported better-than-expected results.  As some investors view banks as harbingers of other reports yet to come, this is encouraging for the rest of the results that will be announced in coming weeks.

One interesting item that bears watching in the months to come – a recent survey shows that executives are much more worried about the impact on the economy of a Trump defeat in November than they are about the trade war with China.

In our TSP Watchdog database, new all-time highs in all three indexes keep the trends positive for the equity funds: C fund, S fund and I fund.  All three actually pushed further above their trend lines.  All the L funds also remain on positive trends.

The F fund remains the only TSP fund on a negative trend – remining stubbornly below its trend line.

With the C, S and I funds holding to positive trends, we continue to hold them in our model allocations.  With the F fund remaining on a negative trend, we continue to avoid it in our models.

The continuing positive trends in the C fund, S fund and I fund extend the gains for holders of these funds.  As long as these funds stay on positive trends, we will continue to recommend holding them, and, thus profiting from their advances.  We’ve been in this mode for almost a year now, and the market’s gains over this period have been quite rewarding.

We will remain in this posture until trends change.

Sometimes it is difficult to stay the course when a market rally appears to “defy gravity”.  Our hope during periods like this is that our objective trend analysis gives you the confidence to remain invested while the trends are positive – even if the news headlines and/or the talking heads might otherwise scare you out of the market.

When the trends change, we will alert you.

As always, please feel free to reply to this email with questions.

Scot B.