TSP Commentary for 03/28/16

After five weeks of rising prices, stocks took the holiday-shortened week off and posted small losses.  The S&P 500 declined 0.66% and the Dow declined 0.49%.  Things would have looked worse but for a late rally on Thu (before the Good Friday holiday) which took advantage of virtually no volume to push prices higher by 100 points on the Dow and 11 points on the S&P.

Of course, the big story of the week was that terrorist attack in Brussels.  The markets didn’t seem too upset about this horrific event – as there were no follow-on attacks.  It seems investors are a bit desensitized to isolated attacks a la Paris, Brussels, etc.  Of course, a series of coordinated attacks – which the intelligence community claims is buzzing since Tuesday’s attack in Brussels – might register more dramatically with investors.

As we ready for publication, another attack is being reported in Pakistan – at a park where Christian Pakistanis were celebrating Easter.  Scores are reported dead and more than 300 injured.  The Taliban is claiming responsibility for this suicide attack – so this may not be “coordinated” with the ISIS-claimed Brussels attack, but the relative calm that the markets enjoyed during its 5 week advance may be over…at least for now.

We have said it many times, but we’ll say it again – investors like a calm and predictable environment.  Unsettled and volatile circumstances make investors nervous, and they become very cautious when things get topsy turvy (sorry for the technical lingo…LOL).  This caution often takes the form of moving to cash to wait until things settle down.

Combine the uncertainty created by multiple terrorist attacks with the extremely overbought condition of the market entering last week, and you have the makings for a correction.  Given that this correction comes on the heels of a “short covering” rally that topped out well below the last peak in November and December, and downside risk is again starting to overtake upside potential.

In our TSP Watchdog database, we have no trend changes to report.  The unconfirmed uptrends in the C fund and L funds that we discussed last week remain unconfirmed – and further from confirmation now than at this time last week.  We are certainly happy to have waited for confirmation before “officially” recommending a move back into the C fund.

For those of you who were eager to get back into the C fund (or L funds) and did so based on the unconfirmed uptrend, we caution that what we referred to last week as “the last thing we want…to turn positive on the market just as the current advance tops out” may be playing out.  If the selloff that started modestly last week continues this coming week, you may want to become cautious yourself and move back into the G fund.

For those of you who opted for our more “conservative” approach in last week’s commentary, to stay in the G fund until any new uptrend was confirmed, stay put in the G fund at least until this latest, modest selloff plays out.  It may get worse before it gets better.  Or not.  But we’re better off in cash (the G fund) until we get a clearer picture – in the form of a confirmed uptrend.

Bear markets are not fun.  They are not full of “easy money” in the market.  In fact, the opposite is true – bear markets have a propensity to take money out of your portfolio.  Our objective during these times is not to maximize profits…but to minimize losses.  It is not as exciting as seeing your account gain value week after week, but in the long run, protecting principal is the most important thing you can do to improve your returns.

So, it was looking like we might be headed to a new positive trend in the C fund (and L funds), but that development slipped further away last week.  We may still get that confirmation if the market turns back up soon, but for now we’ll stay in G fund to protect capital.  Only if/when we get confirmed uptrend(s) will we recommend moving back into the C fund, S fund or I fund.

If you have any questions about how all this volatility impacts your TSP account, please feel encouraged to reply to this email and send us your questions.  We are here to help you any way we can.

Scot B.