After three straight up weeks, the S&P 500 finished down at 4478. Monday was up and marked the last day of July, which made it five straight up months. However, August rolled in on Tuesday, and that bullishness turned sour with the first four trading days down. Overnight on Tuesday, Fitch Ratings downgraded the United States long-term credit rating from AAA to AA+ for only the second time in the nations history. The basis for this was the level and trajectory of federal debt, which is almost 100% of gross domestic product (GDP) and significantly higher than most of the other AAA-rated countries. As such, the S&P 500 gapped down on the open and had its first daily down move of greater than 1% since 23 May. Thursdays big event came after the markets close, with Amazon the big winner and Apple taking it on the chin after reporting a third straight quarter of declining revenues. Also before Fridays open, Julys employment report came in with nonfarm payrolls rising by 187,000 and the unemployment rate dipping slightly to 3.5%. After an up morning, the market cap weight of Apple pressured the S&P 500 and it finished at the session and weeks low. From a technical perspective, the S&P 500 finished below the low of the last two up weeks signaling a 2 Bar Reversal. It also showed two weaknesses as 1) its price closed below its 20 day Moving Average (MA) and 2) its 20 day Exponential MA crossed below its 20 day MA. Since you know I like to look back, lets look at the history of United States credit downgrades, with the only other one occurring on 5 August 2011, almost 12 years to the date. If you look at the S&P 500 charts in 2011 and 2023, they almost overlay each other. In 2011 the S&P 500 opened at 1257.62. After a nice 9% bullish run to 1370, lets see what happened after that 5 August downgrade. On 4 October the S&P 500 hit a 2011 low of 1075, or 22% off the high. At 2011 year end, it closed at 1257.60, almost exactly where it started the year. While no one can predict the future, it does give you something to think about. Next week the markets have the inflation numbers to digest. For TSP TIPS, both the C and S funds hit new 52 week highs on Monday. However, for the week all three equity funds (C/S/I) were down. Given the above discussion, we are recommending increasing the G fund allocation in the Aggressive, Moderate, and Conservative models.
After three straight up weeks, the S&P 500 finished down at 4478. Monday was up and marked the last day of July, which made it five straight up months. However, August rolled in on Tuesday, and that bullishness turned sour with the first four trading days down. Overnight on Tuesday, Fitch Ratings downgraded the United States long-term credit rating from AAA to AA+ for only the second time in the nations history. The basis for this was the level and trajectory of federal debt, which is almost 100% of gross domestic product (GDP) and significantly higher than most of the other AAA-rated countries. As such, the S&P 500 gapped down on the open and had its first daily down move of greater than 1% since 23 May. Thursdays big event came after the markets close, with Amazon the big winner and Apple taking it on the chin after reporting a third straight quarter of declining revenues. Also before Fridays open, Julys employment report came in with nonfarm payrolls rising by 187,000 and the unemployment rate dipping slightly to 3.5%. After an up morning, the market cap weight of Apple pressured the S&P 500 and it finished at the session and weeks low. From a technical perspective, the S&P 500 finished below the low of the last two up weeks signaling a 2 Bar Reversal. It also showed two weaknesses as 1) its price closed below its 20 day Moving Average (MA) and 2) its 20 day Exponential MA crossed below its 20 day MA. Since you know I like to look back, lets look at the history of United States credit downgrades, with the only other one occurring on 5 August 2011, almost 12 years to the date. If you look at the S&P 500 charts in 2011 and 2023, they almost overlay each other. In 2011 the S&P 500 opened at 1257.62. After a nice 9% bullish run to 1370, lets see what happened after that 5 August downgrade. On 4 October the S&P 500 hit a 2011 low of 1075, or 22% off the high. At 2011 year end, it closed at 1257.60, almost exactly where it started the year. While no one can predict the future, it does give you something to think about. Next week the markets have the inflation numbers to digest. For TSP TIPS, both the C and S funds hit new 52 week highs on Monday. However, for the week all three equity funds (C/S/I) were down. Given the above discussion, we are recommending increasing the G fund allocation in the Aggressive, Moderate, and Conservative models.