After nine interest rate hikes over the past three years, the Feds “dovish” interest rate announcement on Wednesday led to major market indices hitting new 2019 highs on Thursday. However, on Friday, this “positive news” resulted in an inversion of the yield curve which is when the 3-month Treasury bill yield crosses above the 10-year note rate. This is the first inverted yield curve since 2007, which consequently puts a damper on bank lending profits and sent the banking sector lower. From a longer-term perspective, an inverted curve is sometimes considered a forerunner of a recession. That said, the markets had their worst day since 3 January and the S&P 500 closed the week at 2800. For TSP TIPS, the above gives us a lot to factor in from a technical perspective. On Thursday both the bond (F) and equity funds (C/S/I) moved in unison and all four closed at their highest levels since last December’s bottom. However, we had a divergence (Factor 1) between the four on Friday when the F fund hit a new high while the C/S/I equity funds had their worst days since the beginning of the year. To recap (Factor 2), on 3 January the C fund lost 2.45 percent, but then gained it all back and more, up 3.43 percent on 4 January. This Friday the S fund also tripped its “2.5% Loss Circuit Breaker” (Factor 3) when it lost over 3 percent. For the C fund, it looks as if it will have a “Golden Cross” (Factor 4) next week when it’s 50 day moving average crosses above its 200 day moving average. From a Performance Ranking (PR) perspective (Factor 5), it is now 3 months since the 24 December market lows. As such the 3 month return will be decreasing and unless the market increases, overall PR will come under pressure as it places a 30 percent weighting on the 3 month return. It should also be noted that the TSP usually allows only two reallocations per month (Factor 6), and Monday is the last Monday of March. Given these “6 Factors”, TSP TIPS has weighed in the pros and cons of each and is recommending the following reallocation.
After nine interest rate hikes over the past three years, the Feds “dovish” interest rate announcement on Wednesday led to major market indices hitting new 2019 highs on Thursday. However, on Friday, this “positive news” resulted in an inversion of the yield curve which is when the 3-month Treasury bill yield crosses above the 10-year note rate. This is the first inverted yield curve since 2007, which consequently puts a damper on bank lending profits and sent the banking sector lower. From a longer-term perspective, an inverted curve is sometimes considered a forerunner of a recession. That said, the markets had their worst day since 3 January and the S&P 500 closed the week at 2800. For TSP TIPS, the above gives us a lot to factor in from a technical perspective. On Thursday both the bond (F) and equity funds (C/S/I) moved in unison and all four closed at their highest levels since last December’s bottom. However, we had a divergence (Factor 1) between the four on Friday when the F fund hit a new high while the C/S/I equity funds had their worst days since the beginning of the year. To recap (Factor 2), on 3 January the C fund lost 2.45 percent, but then gained it all back and more, up 3.43 percent on 4 January. This Friday the S fund also tripped its “2.5% Loss Circuit Breaker” (Factor 3) when it lost over 3 percent. For the C fund, it looks as if it will have a “Golden Cross” (Factor 4) next week when it’s 50 day moving average crosses above its 200 day moving average. From a Performance Ranking (PR) perspective (Factor 5), it is now 3 months since the 24 December market lows. As such the 3 month return will be decreasing and unless the market increases, overall PR will come under pressure as it places a 30 percent weighting on the 3 month return. It should also be noted that the TSP usually allows only two reallocations per month (Factor 6), and Monday is the last Monday of March. Given these “6 Factors”, TSP TIPS has weighed in the pros and cons of each and is recommending the following reallocation.