Hello Folks
As the week wraps up, the indexes unfortunately had a very bad performance, with the NASDAQ now officially in “Bear Market” territory, and the S&P 500 having briefly entered it today (however it recovered back above it later in the day).
Inflation and rising interest rates appear to be the primary threats for the stock market. Currently, the FOMC team appears to want to raise rates “as fast as possible” per this podcast here: https://podcasts.apple.com/gb/podcast/feds-barkin-wants-to-hike-as-fast-as-feasible/id1623606106?i=1000560528697
The academic theory behind this is that when inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher.
In the meantime, stocks take a hit, however the Federal Reserve is not really concerned about the stock market, that is not in its wheelhouse (making your 401k or TSP go up or down): https://www.cnbc.com/2022/05/19/fed-isnt-focused-on-impact-of-rates-on-stocks-esther-george-says.html
Stocks typically LEAD (not lag) economic indicators, an “official” recession is declared (officially) only by the National Bureau of Economic Research, via the Business Cycle Dating Committee (BCDC); any such declaration will be made long after it the recession starts:
Indeed, you will likely see economists from large firms such as Bank of America, JP Morgan, come out with their own assessments of a recession, the important thing to note is 1) the stock market LEADS, and 2) most recession declarations are made post-incident, after we are in it.
What does that mean for the TSP ? Well since it is the government’s version of a 401(k), it means the stock funds will likely go lower, versus higher. How you manage your investment decisions is up to you, I merely share things how I see them. However before you jump to F-fund (Bonds), consider the below May 3, 2022 interview (at time stamp 4:07) with billionaire hedge fund manager Paul Tudor Jones:
In his opinion, the world should neither be in stocks, nor bonds. In TSP land, what does that leave? The only option, is the G-Fund. Not that I have ever talked about G-Fund, ever, on this site. No, the paltry +.65% G-Fund return year to date is not keeping up with inflation. However if +.65% is not, I can guarantee you that the negative -18% in the S-Fund for sure is not keeping up with inflation. Just thinking out-loud with my personal opinion…consult your professional advisors and do your own research in regards to how much risk and what rates of return are appropriate for your personal situation.
That is all I have for now. Unfortunately not the best of news this week. Maybe the stock markets see this post and reverse course next week, and gas prices go to $1 a gallon. Well, wishful thinking. I will be monitoring things. For now have a good weekend.
Note: Some email programs have been blocking the images in my posts, if this happens please just click on this link to be taken directly to the website itself: http://www.thefedtrader.com/
-Bill Pritchard
