TSP Commentary for 12/24/18

This is your TSP Watchdog UPDATE for the week ended December 21, 2018.

Sorry, folks.  I was hoping this would be a slow week, and we could all leave early for the Christmas week, but the market had its own ideas.

In the worst week for stock prices since 2008, the S&P lost 7.05%, the Dow lost 6.87% and the NASDAQ lost 8.36%.  On the Dow, we had losses of 508 points, 352 points, 464 points and 414 points.  Just one of these days is usually enough to mean a bad week for stocks.

Three significant issues weighed on investors:

  1. The Fed raised rates again – the fourth time this year, and they suggested two more hikes are coming next year (down from previously discussed three hikes in 2019).
  2. President Trump announced, pretty much out of the blue, that the US will be withdrawing all troops (approximately 2,000) from Syria.
  3. Legislators could not reach an agreement on government funding, and a partial shutdown took effect at the end of the week.

The Federal Reserve had the difficult task of reducing its outlook for rate hikes in 2019 (a move based on concerns about the economy) while not spooking investors about the economy.  Obviously, they did not walk this delicate line very well.  Investors were more than spooked.

From the market’s perspective, the withdrawal of troops from Syria is probably the least worrisome factor, but the “chaos factor” of how it was announced, and the ensuing resignation of Secretary of Defense, James Mattis, weighed on the markets.

Last, but certainly not least – especially to TSP participants, the government shut down was the result of failed negotiations that featured on-again, off-again demands for border security and “the wall”.  Hopefully, and expectedly, the shutdown will end up being paid vacation over the holidays – but the larger picture of flip-flopping on funding the wall, and the President being chided by conservative commentators into renewing his stance, after showing signs of backing down, was another “chaos factor” for the market.

In our TSP Watchdog database, we had no changes during the week – though the F fund continues to be very close.  In fact, from a price perspective alone, the F fund has returned to a positive trend.  But from a technical perspective, it lacks follow thru potential – so we leave it on a negative trend.

With the selloff this week, the three growth funds (C, S and I) are all significantly below their highs from earlier in the year:

  • The C fund is down 17.13% from its Sep 20 high.
  • The S fund is down 23.03% from its Aug 31 high.
  • The I fund is down 20.52% from its Jan 26 high.

Happily, those of you who have followed our recommendations and moved away from each fund as they turned onto negative trends, have missed most of these losses.

  • The C fund is down 8.16% since we recommended moving out on Oct 29.
  • The S fund is down 14.96% since we recommended moving out on Oct 15.
  • The I fund is down 12.96% since we recommended moving out on Jun 25.

This is exactly what TSP Watchdog is designed to do – avoid significant downturns.  From here, our charge is to help you get back into the funds after the storm passes.

We enjoyed 18-24 months of upside in the C, S and I funds – from Nov, 2016 until mid-2018 and late-2018.  Keeping in mind that the markets typically decline much faster than they climb, do not expect these negative trends to last as long as the rally that preceded them.  Stay alert for our recommendations to re-enter the funds when the trends reverse back to positive.

A HEADS UP: trend reversals back to positive trends can be very gut wrenching to follow.  They often come before the “sunrise” of the next rally.  The old saying, “it is darkest right before the dawn” is spot on.  Remember that, when these funds start returning to positive trends.

Of course, all that is prospective.  TODAY, we are hunkered down in a defensive position – on the sidelines, 100% in the G fund, waiting for the storm to pass.

Don’t get clever and think about buying this market, yet.  Wait for confirmation – in the form of positive trends – before wading back in.  Buying a market that is sliding this fast is like trying to catch a falling knife.  Usually, it is painful.

Be patient.  Don’t try to force things.  Be glad you are on the sidelines – missing this bloodbath.  Yes, you will miss some big rally days too (because big UP days and big DOWN days tend to cluster together), but right now the sum total of the good and bad days is still negative.

Please reply to this email with any questions.  We are here to help any way we can – though we will be on “holiday hours” this week and next.  We will reply ASAP.

Merry Christmas…Best of the season…Happy & Safe New Year…to all.

Scot B.