The S&P 500 posted another losing week dropping to October 2021 levels closing at 4397 on Friday. The technology sell off continued this week due to the rise in interest rates and with a tightening of monetary policy, growth stocks are unfavorable. Bond yields hit highs with the 10-year reaching 1.9% on Wednesday. The NASDAQ was hit the hardest this week, down more than 14% below its November high and in correction territory, having its worst start to a year since 2008. Growth stocks that ballooned during the pandemic are now unappealing. For example, Peloton (PTON) is down more than 80% off its high and will no longer be a component in the NASDAQ 100. Also, Netflix reported disappointing fourth quarter earnings on Friday resulting in a daily loss of 22% (yes in one day). This current market weakness has been systemic, and we need to remember that the Top 5 holdings of the S&P 500 (Apple, Microsoft, Amazon, Facebook/Meta, Google) have about a 20% weighting. The overall picture coming into focus for 2022 is a year of the Federal Reserve raising interest rates while trying to cool inflation, which creates a rotation out of growth companies, the companies that have been carrying the markets on its backs the past two years. From a technical perspective, we use our Performance Ranking (PR) to determine where to invest. Simply stated, the PR is a weighted average of a funds 1, 3, 6 and 12 month returns. The highest PR receives a grade of A, negative returns have a grade of F, with the PRs in between receiving grades B through D. As we closed out 2021 the S&P 500 was an A. Throughout January that grade has decreased and with Fridays close, became an F. The last time the S&P 500 had a F was in March 2020 when the pandemic hit. Since then it has increased steadily spending the majority of time as an A. So when this F happened with Fridays close it was significant. We should also remember that the velocity of that March 2020 decrease was historic, and things can happen quickly in the market, especially with the Fed meeting next week and were just at the initial stages of earnings season. When you combine the above elements, it puts a bearish spin on the markets and the need to be more defensive, i.e. raise cash. For TSP TIPS, with Fridays close the C, S, I, and F funds now all have 1) a negative Performance Ranking and 2) a price below their 200 day Moving Average. Additionally, the S and F funds are in true bearish territory as their price is below their 50 day Moving Average which is below their 200 day Moving Average. The I fund will likely fall into that same category on Monday. The C fund is the only fund that has its 50 day Moving Average above the 200 day. As such, we will take advantage of our third transaction of the month as follows.
The S&P 500 posted another losing week dropping to October 2021 levels closing at 4397 on Friday. The technology sell off continued this week due to the rise in interest rates and with a tightening of monetary policy, growth stocks are unfavorable. Bond yields hit highs with the 10-year reaching 1.9% on Wednesday. The NASDAQ was hit the hardest this week, down more than 14% below its November high and in correction territory, having its worst start to a year since 2008. Growth stocks that ballooned during the pandemic are now unappealing. For example, Peloton (PTON) is down more than 80% off its high and will no longer be a component in the NASDAQ 100. Also, Netflix reported disappointing fourth quarter earnings on Friday resulting in a daily loss of 22% (yes in one day). This current market weakness has been systemic, and we need to remember that the Top 5 holdings of the S&P 500 (Apple, Microsoft, Amazon, Facebook/Meta, Google) have about a 20% weighting. The overall picture coming into focus for 2022 is a year of the Federal Reserve raising interest rates while trying to cool inflation, which creates a rotation out of growth companies, the companies that have been carrying the markets on its backs the past two years. From a technical perspective, we use our Performance Ranking (PR) to determine where to invest. Simply stated, the PR is a weighted average of a funds 1, 3, 6 and 12 month returns. The highest PR receives a grade of A, negative returns have a grade of F, with the PRs in between receiving grades B through D. As we closed out 2021 the S&P 500 was an A. Throughout January that grade has decreased and with Fridays close, became an F. The last time the S&P 500 had a F was in March 2020 when the pandemic hit. Since then it has increased steadily spending the majority of time as an A. So when this F happened with Fridays close it was significant. We should also remember that the velocity of that March 2020 decrease was historic, and things can happen quickly in the market, especially with the Fed meeting next week and were just at the initial stages of earnings season. When you combine the above elements, it puts a bearish spin on the markets and the need to be more defensive, i.e. raise cash. For TSP TIPS, with Fridays close the C, S, I, and F funds now all have 1) a negative Performance Ranking and 2) a price below their 200 day Moving Average. Additionally, the S and F funds are in true bearish territory as their price is below their 50 day Moving Average which is below their 200 day Moving Average. The I fund will likely fall into that same category on Monday. The C fund is the only fund that has its 50 day Moving Average above the 200 day. As such, we will take advantage of our third transaction of the month as follows.