Monthly Archives: November 2018

Good Evening Folks

I got a few emails and messages from some who wanted to “jump back in” to stocks/stock funds when they saw the Dow Jones rally 545 points on November 7, the day after mid-term elections.  The general mantra was “we are missing some gains.”  However as it turned out, those “gains” quickly evaporated when the mid-term “pop” capitulated and reversed lower.  On more than one occasion, I had to use a soft voice and soothe some skeptics, who believed stocks were going to triple the next day.  The purported rally was viewed with suspicion by me, due to its lack of volume.  It appears my crystal ball was accurate:  Using closing data, the Dow Jones index is 793 points lower today compared to the Nov-7 close.  Not exactly the “missed gains” some believed would happen.

Before I go farther, lets talk about recent TSP Fund Performance.   October was brutal, however a look at the chart will reflect that last 12-Month performance had the best gains in the S-Fund and C-Fund, two funds out of ten choices, that I have personally been in myself almost all year.   The I-Fund performance was/is the worst fund Year to Date and last 12-months.

A review of various financial and investing websites (to include TSP sites) seems to theorize that this “downtrend” is merely a “hiccup” or “speed bump” and things are “not unlike a similar selloff in February.”    However things indeed are different.    The following facts were either not known/not on the horizon, back in February:

• Housing cooling off
• Interest Rate Hikes further along then February
• Corporate Earnings from numerous companies below expectations
• Tariff disagreement and threats of sanctions/counter-sanctions
• 30-year Fixed Rate mortgage rate presently at 7 year highs
• Numerous indicators reflecting a slowing economy

As such, in my opinion this downtrend is a new situation and possibly reflects a looming Bear market ahead.  I mentioned in my Oct-23 post that:

“…things may rally back up in the coming weeks, but the “smart money” will sell into this rally (if it occurs…), capturing some last-minute gains, but then, soon after, the bottom may fall out of the markets. A technical indicator, the 50-Day and 200-Day moving average, indeed reflects a possible downturn ahead…”

I still hold that belief, especially if agreement with China does not occur at the G-20 Summit, which begins Nov-30 (17 days away).  Further compounding problems is a very probable rate hike by the FOMC in December.   My crystal ball anticipates additional turbulence in the months ahead.  Lets take a look at a chart of the SP 500:

Apparent in the chart is the fact that the Nov-7 “pop” failed, with the reversal of trend on volume which is average to slightly above average.  The index is back below its 200-Day Moving Average, a negative indication.

In light of recent market behavior, and the previously discussed economic signals in the “background”, I remain 100% G-Fund in my personal TSP.

FYI that Core CPI will be released on Nov-14, this may serve as additional catalyst to send markets lower, if the number is 2.3% or higher.

Thank you for reading….talk to you soon….

-Bill Pritchard

Good Evening

As most know, Nov-6 was the date of the Midterm Elections (unless you voted early).   I have said in prior posts that the midterm elections is one of many trigger events causing stock market angst.   My opinion is any power shift in Congress could potentially derail Pro-business efforts and pro-business tax policy.   As of 11 PM Central Time, it appears that Democrats will take control of the House, and Republicans will have control of the Senate.   The Dow Futures have responded positively to this, see table at 7PM and 11 PM:

Some studies exist that in cases with a Democratic House, and a Republican Senate, this is “good” for the markets but these prior cases are arguably (in my opinion) from a different era of politics, pre-Twitter, etc.  I will not expand further but safe to say I believe the midterms are a point of concern for the markets.  California Democrat Maxine Waters, an vocal critic of President Trump, is expected to become Chairwoman of the United States House Committee on Financial Services, which oversees the banking, securities, and other industries, to include the FOMC, which sets interest rates.  Expect attempts to slow down rate hikes to be met with resistance by the new Chair.

Not until multiple days, post-election, will the “mood” of the markets be identified regarding the election.  It is not known who is getting fired, subpoenaed, or what new investigations will be opened (and on whom) regarding the shift in Congress.  Expect continued discussion of sanctions and tariffs against a variety of countries.  Opinion:  I would “monitor things” before making a decision on a new TSP Allocations.

Lets take a look at what has happened in recent days.   The markets are in what is termed “Attempted Rally Mode”, in which they indeed have “up” days however volume is lagging, or below, the 60 to 90-Day average volume.  To overcome prior sell-offs which occurred in October, the markets will need much more powerful volume.  The markets have displayed six “rally attempts” so far.  Ideally, a “follow thru day” occurs in the very near future, with volume greater than the prior day, with the index closing 1.7% or higher than the prior day.   Without a “follow thru day” soon, the market will likely resume a downward direction.

Lets take a look at the SPY Exchange Traded Fund (ETF) as a proxy for the SP 500.

Some important economic reports will be released in coming weeks, CPI Inflation Data will be released on Nov-14, any Core CPI level 2.3% or higher will trigger renewed inflation fears and add fodder to the justification for interest rate hikes.  Anything below would likely be embraced by the markets.   Additionally, the FOMC will release an announcement on Nov-8 regarding current and future monetary policy.

In sum:  I view the recent action with suspicion, due to the lack of volume.  Numerous threats still exist in the landscape, notably a political power shift, interest rate hikes, and threats of tariffs and sanctions.  With that said, I remain 100% G-Fund in my personal TSP Allocation.

Talk to you soon…..

-Bill Pritchard

Good Evening

Thankfully, October 2018 is now behind us.  A month that historically is a good month, closed in the red, with the SP 500 having its worst monthly loss in seven years, all in a month that should be up.  TSP Fund Returns reflect that all funds, except the G-Fund, closed in the red.  On a 12-month basis, the only negative fund was the I-Fund.  On a Year to Date (YTD) basis, the worst performer was the I-Fund.

My opinion is the market continues to be challenged, primarily by the below things:

1. A possible cooling economy.  “Cooling” can be painted as a super white hot charcoal briquette turning into merely a hot briquette.   Both will burn your hand.  The overall economy is still churning along pretty well.  But numerous signals reflect things may be cooling.
2. Interest Rate hikes in December.  Most believe the FOMC “has no choice now” but to demonstrate independence and freedom from political influence and thus raise rates in December.
3. Midterm election uncertainty.  Midterm elections are November 6, any sway of power from one party to another could be a destabilizing event and put at risk the other party’s initiatives, many of which are Pro-business (US business…) in nature.
4. Unresolved Tariff Situation.  With the G-20 summit scheduled for Nov 30-Dec 1, a lot of hope exists that progress can be made with China regarding tariffs.  But the “proof is in the pudding”, we have seen no movement on this issue yet and tariffs are still expected.
5. Poor Corporate Earnings / Poor outlook ahead.  Numerous companies have reported poor quarterly earnings and/or poor outlook ahead.  Included in this list are well-run and large, dominant players- GE, Kraft-Heinz, Ford Motor Company, 3M, Disney, 

I got a couple of messages from folks regarding this week’s action.  Indeed, the markets rallied.  We are in a tug of war, bulls versus bears, and my status in G-Fund means I am watching the boxing ring, but not in the ring.  Note that a close analysis of the SPY Exchange Traded Fund (ETF), reflects lesser volume each day of the “rally”.   See chart:

In blue, you will see the “sell off” volume growing larger each day, indicating that more folks hit the fire exits each day, versus less.   Then it appeared to have possibly reversed this week (Oct 29 week).   The buying volume trailed each day.  It did not pick up each day, indicating that as time went on, the “number of believers” were less and less.  To reverse the prior damage, volume needs to pick up (ideally exceeding each prior “up” day), and prices need to go higher.   The SP 500 Index is sitting at the 200 Day Moving Average, a widely accepted “caution zone”- anything above is good, anything below is bad.

With that said, my opinion is the markets are indeed in a correction and I prefer to be investing in the G-Fund.   Yes, investing, the TSP site itself labels it as such, the word invest or investment is mentioned seven times on the TSP G-Fund page:    https://www.tsp.gov/InvestmentFunds/FundOptions/fundPerformance_G.html

The TSP site (a site with good information) says this about folks nearing retirement:  https://www.tsp.gov/PlanningTools/RetirementPlanningPhases/nearingRetirement.html

The way in which you distribute your money among the TSP funds should reflect your time horizon and your risk tolerance. The closer you are to retirement, the shorter your time horizon. As a result, your primary focus might shift from growth and accumulation to safety and preservation. Even if your risk tolerance is very high, you may not have time to recover from severe drops in the market if a large portion of your account is allocated to stock funds. If you determine that you have not saved enough, this is not the time to take on more risk than you have the ability to sustain — the better alternative would be to increase your savings.

[Written to target pending retirees…] If you are heavily invested in the stock funds, now is the time to consider shifting to a more conservative allocation, especially if you do not have other retirement funds safely invested elsewhere.

Just wanted to share that for awareness.

Thank you for reading….I remain 100% G-Fund in my personal TSP.

-Bill Pritchard