January kicked off 2020 with record high closes, but coronavirus fears this past week reversed that trend. The WHO and the U.S. declared global health emergencies, with China travel suspended and Apple shutting down its stores there. The uncertainty of the potential global economic impact escalated investor fears leading to market sell offs on Monday and Friday, with the S&P 500 closing the week at 3243. On Wednesday the Fed held steady on interest rates and the markets are anticipating two rate cuts this year. During the week, earnings remained strong with 70 percent of companies exceeding earnings expectations, highlighted by Amazon’s 7.4% rise on Friday. And to cap it off, after Friday’s close the impeachment hearings appear to be in the home stretch and Brexit became a reality for Britain. But now let’s look at the market from a technical perspective. Friday’s 603 point Dow loss was the 5th greatest daily loss in the last twelve months. However, the greatest loss in those twelve months was 800 points on 14 August 2019. On that date the S&P500 closed at 2840. However, since that date we’ve had this steady bullish run which culminated in a new S&P 500 record high of 3329 just two weeks ago on Friday, 17 January. I also like to look back and contrast current events to previous similar events, which took me back to the market sell off in January 2018. Eerily similar and almost exactly to the day, on 26 January 2018 the S&P 500 made a new record high of 2872. Within two weeks, the S&P 500 closed at 2581 for a 10% loss before reversing itself to the upside. It should also be noted that the S&P 500 has never closed below that 2581 level since then. Now let’s look at the differences. Over the past two weeks the S&P 500 is down just a shade over 3%, less than half the loss in 2018. Additionally, the Bollinger Band Index (BBI), which is a measure of volatility, had a neutral reading of only 39 this past Friday. In February 2018 the BBI had an oversold reading of 133. So how does all this get boiled down to TSP TIPS? With the accommodating Fed, interest rates have fallen which has resulted in the F bond fund hitting a record high four times this week including Friday. Conversely, the C fund remains at the top of the equity fund (C/S/I) ladder. Building on the initial F bond fund position that we took last week, we are recommending a further increase in the F bond fund allocation due to its aforementioned strength.
January kicked off 2020 with record high closes, but coronavirus fears this past week reversed that trend. The WHO and the U.S. declared global health emergencies, with China travel suspended and Apple shutting down its stores there. The uncertainty of the potential global economic impact escalated investor fears leading to market sell offs on Monday and Friday, with the S&P 500 closing the week at 3243. On Wednesday the Fed held steady on interest rates and the markets are anticipating two rate cuts this year. During the week, earnings remained strong with 70 percent of companies exceeding earnings expectations, highlighted by Amazon’s 7.4% rise on Friday. And to cap it off, after Friday’s close the impeachment hearings appear to be in the home stretch and Brexit became a reality for Britain. But now let’s look at the market from a technical perspective. Friday’s 603 point Dow loss was the 5th greatest daily loss in the last twelve months. However, the greatest loss in those twelve months was 800 points on 14 August 2019. On that date the S&P500 closed at 2840. However, since that date we’ve had this steady bullish run which culminated in a new S&P 500 record high of 3329 just two weeks ago on Friday, 17 January. I also like to look back and contrast current events to previous similar events, which took me back to the market sell off in January 2018. Eerily similar and almost exactly to the day, on 26 January 2018 the S&P 500 made a new record high of 2872. Within two weeks, the S&P 500 closed at 2581 for a 10% loss before reversing itself to the upside. It should also be noted that the S&P 500 has never closed below that 2581 level since then. Now let’s look at the differences. Over the past two weeks the S&P 500 is down just a shade over 3%, less than half the loss in 2018. Additionally, the Bollinger Band Index (BBI), which is a measure of volatility, had a neutral reading of only 39 this past Friday. In February 2018 the BBI had an oversold reading of 133. So how does all this get boiled down to TSP TIPS? With the accommodating Fed, interest rates have fallen which has resulted in the F bond fund hitting a record high four times this week including Friday. Conversely, the C fund remains at the top of the equity fund (C/S/I) ladder. Building on the initial F bond fund position that we took last week, we are recommending a further increase in the F bond fund allocation due to its aforementioned strength.