The Fed Trader

Hello to all the subscribers and Happy (belated) New Year.   I waited until now for this post, desiring to let the first two weeks of January come and go, with some market messaging hopefully obtained by now.   Let’s talk about the continued lethargy on the indexes and the challenges which appear to exist in the near term.

Shortly after my previous post (on December 20), the markets indeed rallied, but this was on very low volume.  I have stated numerous times on this site that volume is the “horsepower” behind the corresponding move, a move up with strong volume reflects a high probability that the move will continue.  A move up on low volume, not so much.    See chart of the S&P 500 index:

As we can see, the low volume coincides with the Christmas and New Year holiday time frame.   Once “Wall Street came back” from the holidays, the first week of January, the index went lower each day of the first trading week of the year, on above average volume.  It then recovered slightly, likely due to bargain hunters “buying low” but then deteriorated a few days again.   As of Jan 14, the index is basically in the same position as it was in November and December.

The tech heavy NASDAQ, also the location of many S-Fund / small cap companies, is performing even worse, having broken thru its 50-day and 200-day Moving Averages:

While the above performance does not mean it is time to panic, it is clearly undesirable and especially so, in light of the fact that trading during the first week of the calendar year historically “sets the tone” for the rest of the year.

What is causing this to happen?  As stated in my December 20 post, the concerns appear to be inflation, and COVID (Omicron variant).  Please do not interpret my musings about the markets as a political position, I seek to provide my opinion of why the market’s are not performing well, and nothing more.  With that said, inflation data, per two key indicators, known as the Consumer Price Index (CPI) and the Personal Consumption Expenditure (PCE), is at historical all time highs.   I spoke about inflation and interest rate hikes in 2015, at this March 11, 2015 post: http://www.thefedtrader.com/march-11-update-all-about-rate-hikes/

I will not regurgitate what I said in that post, so lets post some visual depictions of just how high inflation has gone up:

CPI and PCE are basically measuring the same thing, albeit with a slightly different formula.  The “Core” data is the measurement not including food and energy (gasoline, etc.), since food and energy can be very volatile and very supply chain dependent.  Core data above reflects rising inflation, at levels never seen before.   This inflation began to rise, per the charts, both in early 2021.   The markets digested it fairly well, in 2021, because no other headwinds really existed. 

Flash forward to late 2021, and we have two things:  1) Inflation has no longer “begun to rise” like it was labeled in early 2021, it clearly is at excessive levels, and 2) COVID via the omicron variant is a new threat to the economy.   We have talked about inflation, lets move to COVID, with charts of CDC reported deaths, and of COVID related ICU admissions.

In my opinion, “new cases” is a worthless (or almost worthless) data point, as some people get COVID and recover quickly, others may test positive but they never had any symptoms, and other reasons.  A direct link to “new cases” and “negative impact to the economy” would be a big leap.   However, again, and let me emphasize this is my opinion, the best way to assess COVID’s impact is COVID death counts, and COVID ICU admissions.   Is it a perfect way?  Is it flawless?   No.   But I think it is the best way (or least worse of all the ways).

Unfortunately, if you are to believe the charts, both ICU admissions and death counts are headed up, not down.  As big employers face OSHA mandates and compliance with “best practices”, the return to the office for corporate America is again in question, business travel, hotel occupancy rates face impact, and other things can be affected.  Indeed, the Omicron variant appears to be “less severe” but staffing shortages are causing schools, airlines, and some restaurants to cancel operations.

An ongoing research study by the University of Texas forecasts that in late January 2022, COVID patients in ICU’s will exceed all previous highs since 2020:

In sum, are major funds on Wall Street, with billions under management, and teams of mathematicians, analysts, and researchers on staff, not watching this?  Of course they are.  And it would be wise that the individual investor be aware of these challenges also.

With that said, a conservative-leaning approach to the TSP would be sound, in my opinion.   I have stated that 75% G-Fund and 25% C-Fund is arguably the ideal allocation for most investors at the present time.   I personally would probably not be 100% I-fund or 100% S-Fund or anything considered aggressive.   At the risk of somebody claiming the Fed Trader is too conservative, I indeed embrace that stance, especially for the retirees.  If you have been 100% S-Fund all 2021 and are thinking about reducing to a more conservative stance, then yes, now is probably the time to do it.  

Standard disclaimer:  How you manage your TSP is up to you.

With that said, my risk-adverse self is signing out for now.   Let’s monitor the inflation, and COVID situation, and hope both stop their climbs.

Hope everyone has a great week, and talk to you soon.

-Bill Pritchard

Good Morning Folks

Unfortunately, the markets continue to deteriorate, with (as stated in my prior post) the Omicron “new variant” and inflation taking center stage.   This morning (Monday Dec-20), the Dow Jones Index is 600 points down, and the S&P 500 has “gapped down” on above average volume.

As you can see in this graphic, the “support level” for the S&P 500 is 4500, while the “overhead resistance” level is at 4725.    The common definition of a “bear market” is when an index declines 20% or more from it’s peak price, so the following levels below (rounded) are important to watch.  Often, once a market enters “bear territory”, additional investors throw in the towel and exit positions, further exasperating the situation…

Dow Jones:   Peak:   36,566.  Bear Level:  29,253

S&P 500:  Peak:  4,744.  Bear Level:  3,795

NASDAQ:  Peak:  16,212.   Bear Level:  12,970

Some additional indicators exist which I monitor daily, however a 20% decline from the peak is a widely accepted rule of thumb for a bear market.   Thankfully, we are not close yet but it is important to be aware of.   Whether you should be “safe” in G-Fund (per the TSP website, indeed an “investment”), or “buying cheap” in the stock funds, as they crash, is a discussion between you and you, my prior posts over the last ten years will reveal my personal opinion on that topic, I plan to cease regurgitating that topic anymore as strong opinions exist on both sides (which I respect).

To reiterate, the Omicron variant, and inflation (more Omicron in my opinion…) is spooking the markets.   This was discussed in my November 28 post (South Africa reported Omicron to the WHO on Nov 24), and, well, here we are today three weeks later, with markets crashing.

I personally am optimistic regarding our economy and resilience in the face of these virus concerns, however indeed at the end of the day, the markets do not care what you, or I, think.  They will do what they do.   A positive observation I have is that South Africa has a huge case uptick but the death rates have not increased, at least not yet, and we are 3+ weeks into the new variant:

https://covid19.who.int/region/afro/country/za

https://ourworldindata.org/explorers/coronavirus-data-explorer?zoomToSelection=true&time=2020-03-01..latest&uniformYAxis=0&pickerSort=asc&pickerMetric=location&Metric=Cases+and+deaths&Interval=7-day+rolling+average&Relative+to+Population=true&Align+outbreaks=false&country=~ZAF

So maybe, just maybe, this new variant, indeed highly contagious, has no severe impact to the victim.  If this proves to be correct, the markets should respond accordingly and come back strong.   “We should know something” by late January, which is two months after the discovery of the initial case.    Back to G-Fund, should you bail out now before the eye of the hurricane hits ?  Or should you wait, with the expectation that things will improve?   Again, that is between you and you (and your professional advisors).

With that said, today is December 20, so allow me to say “Merry Christmas” to all my subscribers and followers.    I wish you a safe and joyful holiday !  I will probably post again after the holidays.

-Bill Pritchard

Good Evening everybody

How time flies, my last post was in July.    As you may know, I have retired from the DEA.  Let’s talk about the markets and recent developments, namely “the new COVID variant” (grumble grumble).

Looking backward, at the last six months, the C-Fund has outperformed all the other funds, with the S-Fund taking second place, up until about a month ago, when the I-Fund outperformed S-Fund.   Enter the “new COVID variant” which was reported to the World Health Organization by the South African health authorities on November 24, which triggered a market sell off on Friday Nov 26.

Presently, my crystal ball tells me that the funds most susceptible to damage from a sell-off will be the I-Fund, then S-Fund, then C-Fund.   I-Fund due to international exposure, S-Fund due to smaller-sized companies and inabilities to sustain economic damage, and lastly C-Fund, all super large companies with ostensibly some protection from short term “new COVID variant” damage.  Clear as mud?   Basically, in my OPINION, if you are 100% I-Fund, you might consult your professional advisors and/or make your own educated decision for your own account and consider reducing some I-Fund exposure.   My OPINION is that (especially for the retired…) a balance of 25% C-Fund (see above comment regarding protection from damage) and 75% G-Fund, the same allocation I discussed in my July post, is still a sensible allocation, again, in my opinion.     

Lets take a look at the original 2020 COVID crash:

As you can see, the market began to deteriorate on February 24, 2020, and began to recover on March 23, 2020, or almost a month later.   What will happen this time?  Who knows, that is anybody’s guess.  However one observation I have is that the stock market, and the economy, in early 2020, both were at all time highs, and rather healthy.  Then COVID came along, and indeed caused havoc.   Presently, now, today, the economy has some other concerns, most notably inflation, and some areas have still not healed from COVID-2020, such as the supply chain (chips for new cars, etc.).   Frankly, the “new variant” is the last thing we need, just when things had started to recover.  I am not fear mongering but just calling it how I see it.  Also important to note is the development of vaccines, which may mitigate impact of this new variant.  As of the publication of this post, the “new variant” (being now called Omicron) has yet to be found in the USA.

Moving on, lets answer if the sell off is “real” or just panic.   Well, any sell off is real, but lets dive deeper behind the scenes, and try to determine if this is the start of a new downtrend or not.  Disclaimer, this is somewhat crystal-ballish, but lets do it anyway.  Keep in mind that Friday was the day after Thanksgiving, historically a day when most market participants are away from keyboards and their Bloomberg terminals.  Friday was also the worst performing day of the year for the Dow Jones index.

Using the Exchange Traded Funds of SPY to monitor C-Fund, and IWM to monitor S-Fund, both witnessed trading volume of 70-90% above their average volumes.   Additionally, Gold traded higher on Friday, indicating a flight to safety.   So how will Monday November 29, and subsequent days, react?   Again, that is a crystal ball but if more negative news develops on the new COVID variant, I believe the markets may continue down.    As seen below, the volume on Friday for the SPY ETF indeed was much higher than average.

The coming days will likely determine which direction the market will go next.  Hopefully Friday’s panic does not continue.   Dow Jones futures for the evening of Sunday Nov 28 are reflect them trading up almost 250 points:

As stated before, my opinion is that 75% G-Fund, 25% C-Fund represents a good allocation in light of ongoing inflationary and COVID concerns.   My opinion is heavy I-Fund exposure may result in undesirable negative impact from any “new variant” COVID concerns.

Additional comment:  I have received some questions about “market timing” and why not just “buy and hold.”  I respect everyone’s opinion, however instead of typing out a response, allow me to direct you to a 2019 post addressing this topic, at this link:  http://www.thefedtrader.com/positive-signs-continue-for-the-markets/

Begin reading about halfway down the post in which I discuss market timing, the G-Fund, and the fact that the TSP website itself (not me…) advocates the use of the G-Fund to protect against losses.    To quote from the US government TSP website:  Consider investing in the G Fund if you would like to have all or a portion of your TSP account completely protected from loss. 

Interestingly, one website existed, of course with no obvious ownership identity or human name behind it, let’s just say the word “allocation” was in the website name, well that website is no longer working and the last update prior to going out of service was sometime in 2019.   Be careful who you listen to folks.   The only people I personally would follow for TSP commentary would be me, Dan Jamison, and Chris Barfield.   All “real humans” and actual participants in the TSP system, with “real skin” in the game.  I am not a CPA, have no planning or tax expertise (nor claim to have it) so you will not find that here.  My passion is market analysis.   With over 7,000+ mutual funds in existence, per Money Magazine , indeed there are a variety of ways to pursue investment returns and analyze the market’s moves.  Some are better than others, some are worse than others.   For every guy that tells me “gee, I could have made more money by not being in G-Fund” is a guy who says “golly jeepers, I sure feel safe in G-Fund.”  What you see here is my method.  If you find it useful or informative, please share this website with your friends and colleagues.

Thanks for reading and talk to you soon….

Bill Pritchard

A somewhat overdue update…

Good Evening to everybody and Hello from “retirement-land,” an odd and chaos-free world, where you no longer carry a work cell phone, you don’t have to put in a leave slip anymore, and you are not constantly deleting emails because somebody sent a global world-wide distribution (with a red exclamation mark) that some office has a FAX-line out of service.

I highly recommend entering this world, as soon as you can.

With that said, it is time for an update from your favorite opinion based TSP and stock market analysis site, aka The Fed Trader.  The last few months (sans AL-slip, and free of mandatory HQ travel notifications), have been spent white-water rafting and hiking in Colorado, then at a beach in Mexico, somewhere else watching a professional soccer game, and other fun stuff.   Updates have been sporadic I know but please don’t beat me up too badly.  However, some things indeed are brewing on the horizon so it is time for an update.   In the last few months, honestly, no earth shattering single-issue news has hit, and I have thus not reported on much, however a combination of things is brewing right now which may, or may not (“opinion based”), impact the markets and subsequently your TSP performance.  Pleasant cheerful reminder that I do not give investment advice and how you manage your TSP is up to you.  Also, this is not a political site and I try to post factual information and data, in almost all cases developed via my own analysis.  At times the data and information may have an [INSERT PARTY]-lean to it, trust me, it is not designed that way.   Moving forward…

My opinion right now is we have two threats ahead, notably Inflation and the COVID Resurge, or potential panic-attacks because of a perceived resurge.

Lets first, before we start, look at the stock market itself.   Why?  Because at the end of the day, it does not matter what a bunch of market analysts, economists, me, or investment advisors think, it just matters what the market does.   So what is it doing?

If we look back 30 to 90 days, my typical investing horizon (apparently my typical website-update horizon too), we will see that the C-Fund is performing best, or “least worst” of all the funds.  We will also see that the S-Fund is getting clobbered recently, as various NASDAQ stocks and small company stocks start to feel what many believe to be pains associated to inflation, supply chain (planes, trains, automobiles), and supply shortages themselves (lumber, computer chips, etc.).  Large super sized companies, the Microsofts and General Electrics of the world, can tolerate some of those things a little better than the smaller companies.

Lets look at a chart of the SPY exchange-traded-fund, a proxy for the S&P 500:

As can be seen, the SPY ETF remains in an uptrend, however it saw some selling/distribution back in March, then in May, then in June.  It remains above its 50 day Moving Average, and technically is still in an uptrend.  However I would have preferred to not see the selling/distribution in recent months.

Lets talk about the “threats” as I see them.   First, inflation.  Two different price indexes are popular for measuring inflation: the consumer price index (CPI) from the Bureau of Labor Statistics and the personal consumption expenditures price index (PCE) from the Bureau of Economic Analysis. Each of these is constructed for different groups of goods and services, most notably a headline (or overall) measure and a core (which excludes food and energy prices) measure.  It should be noted that the Federal Reserve uses the PCE index as a tool when making monetary policy decisions.

The Consumer Price Index (CPI), which is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.  The CPI reflects the largest increase in consumer inflation since 2008 (we all know what happened that year…the housing crash….).

PCE Inflation shows a similar trend, well, inflation is indeed here, again, at all time highs in over ten years.

At some point, all this self-corrects.  Consumers decide that their incomes did not go up 25% this year, so they cannot afford the gas that has doubled, or the steak dinner that tripled, and stop spending.   Note:  Gas prices are up 45% since summer 2020:

Did you get a 45% raise?  Probably not, and this is a simplified demonstration of inflation.   Goods start to cost more than people can afford.  Like I said, at some point it self-corrects.

The final threat, in my eyes, is the perceived (but sure looks real-to-me), COVID resurge, notably the Delta variant.  My uneducated research reveals that the majority of the newly infected are either not-vaccinated people, or unfortunate others in 3rd world countries who received various Russian and Chinese vaccines with reduced efficacies.  They are “vaccinated”, masks come off, and back to regular business.  However infections start soon thereafter.

Looking at “body counts” and “deaths”, the following charts appear to reflect a reversal of the COVID death trend:

The good news, is INSIDE America, COVID seems to be “under control”, the economy is coming back, and summer travel is booming.  But this can be subject to change with the Delta variant, reportedly more contagious than other strains, and also the now dominant strain in the US.

So there you have it folks, “things as I see them.”  Note, due to my retired status, I am very risk-averse with my TSP and as such, have changed things to 75% G-Fund, 25% C-Fund.  Before all the Kevins and Karens cry or post on LinkedIn that I am too conservative and use the G-Fund too much, the above allocation is basically the same as the L-Fund.   Yes, Wall Street fund managers want you to NOT SELL your investments when times get rough, those managers get paid for assets under management (AUM).  “Hang in there Mr Investor” / “Think about the long haul” / etc.  Furthermore, yes, the G-Fund can be part of your road to wealth, albeit slower, per this June 15, 2021 article in Federal News Network:

https://federalnewsnetwork.com/mike-causey-federal-report/2021/06/wanna-join-the-tsp-millionaires-club-ask-one/

Quote:  “……Many years ago, I spent lunches with co-workers, and we would discuss the TSP and where everyone planned to invest their accounts. Back in those days, our only options were just the G, C, F, and I Funds, a small fraction of current TSP funds. Many believed the economy looked promising and spoke about investing aggressively in the C fund. Others chose a more cautious path by not taking any chances and investing 100% of their account in the G fund. In my opinion, both paths of investing — whether aggressive or cautious — can lead to success; you just need to make the choice that will let you sleep at night……”

Wow, powerful.  “Let you sleep at night.”  I have only said that a zillion times on this site.   Glad to see this concept supported over at Federal News Network.  Remember, the TSP official website itself, states that investors should consider investing in the G Fund if you would like to have all or a portion of your TSP account completely protected from loss.  That is not from me, that is from the TSP.   I didn’t “invent” the concept of moving to G-Fund to be protected from loss. 

Summary:

1.  Some threats exist, Inflation and COVID, on the path ahead.

2.  For my personal risk tolerance and ability to sleep at night, I will be changing to 75% G-Fund, 25% C-Fund.

Hope you enjoyed this update, if you feel it is useful please share it with friends and coworkers.  A few TSP analysis sites have come and gone over the years (all claiming to be a “different approach”) but this one remains strong, with continued subscriber growth each month and multi-thousands of subscribers from every federal agency under the moon.  Thank you !

Talk to you soon….

-Bill Pritchard

Good Evening everyone

The first trading week of March is now behind us, and it has been quite a week.  Please bear with me as I share my opinions and my assessment of recent market activity.  My personal TSP Allocation of 100% S-Fund has not changed.  Why not?  I am not a TSP day trader, and instead prefer a long term view of the funds.  A variety of theories, strategies, beliefs, etc. exist out there (just Google search “TSP”) regarding the best way to manage your TSP- just do what works for you.  “Works for you” may mean absolute total returns, it can also mean “be able to sleep at night”, or a combination of the two.  8,000 mutual funds exist in the USA, how many ways exist to invest in stocks?  8,000?  Not sure, but apparently it is a big business if 8,000 funds exist.  Ok, enough soap-boxing, lets move on to what I think is happening in the markets.

Interestingly, the first day of March 2021 was the best S&P 500 day since June 2020.  This was a great way to kick the month off, a month that historically has given us good performance as shown by the below graphic:

Less than desirable however, was the subsequent “mini crash” the various indexes had after March 1, arguably fueled by the rise in 10-year Treasury Yields which many believe is associated to risk of rising inflation.  (Note:  the Dow Jones finished Friday 572 points up for that day…..)

This subsequently causes a fear that the Federal Reserve may change monetary policy and thus some nervousness enters the markets.  However, I am not personally getting too wrapped around the axle about Treasury Yields, not yet, because my other “indicators” (that is checkpoint-speak) show (relatively) smooth roads ahead.  What are these?  They are gold, crude oil, and the overall trend of the indexes.   Lets look at gold, the default safe-haven investment.

As can be seen in the chart, investors are not suddenly flocking to Gold, because “the markets are tanking.”  Gold is down hard, reflecting outpouring of investment.

Lets take a look at Crude Oil, which has seen a spectacular rise in recent months, great news for the oil industry.  I have spoken about this before; many believe rising Crude Oil prices reflect a strengthening economy,  and Crude Oil is increasing rapidly:

The price climb is obvious on the above charts, a climb which began in November 2020.  I recently spoke with a friend from West Texas, an owner of an oil service company, he reports that the industry expects a very positive 2021.  This is further supported by this article:  https://oilprice.com/Energy/Energy-General/Why-Big-Oil-Expects-Record-Cash-Flow-In-2021.html

So we have two fairly reliable (in my opinion) indicators which seem to paint a positive picture.  That leaves us with the S&P 500 index itself:

While this week has been volatile, the overall uptrend is still intact.  The index has only closed below its 50-day moving average once, and that was on March 4.  Indeed volume has increased on the “down” days, but we have seen some positive volume on the “up” days also.

With that, I conclude this update.  Again, my TSP Allocation has not changed.

I hope everyone is doing well and for those traveling or vacationing on Spring Break in the coming weeks, have a safe vacation.   Also, please continue to share this site with your friends and colleagues.  For those who need benefits and retirement program information, beyond market/TSP analysis, always keep in mind Dan Jamison, who authors the FERS Guide book.

Thank you and talk to you soon….

-Bill Pritchard

Hello Folks

The new year is off to quite a start. This includes my own recent retirement from the federal government, under the FERS “25 years of 6(c) = retire at any age” provision. It was truly the best career in the world, with awesome coworkers and colleagues from other agencies and departments. Old habits will die hard…I am not sure if I will ever stop checking my phone for “missed calls” (nobody called…) or if I will be able to change the way I speak, asking my wife “what is the status of the soccer game” or “are you enroute back home” or “what is the game-plan for tomorrow” type of stuff.  Picking up our kid from track?  “Who is transporting” or (alternatively) “who is covering the pickup of….” etc.  I know, crazy.  “Would you like dessert sir?”  Negative.   It will be hard to de-1811ize myself, after all these years.  With that said, I hope to have much more time for this website, and I have some other ideas and projects being contemplated regarding investment education and market analysis. Stay tuned.

Moving onward, time to talk about the markets and the TSP. Back in mid-December, I posted the below regarding small cap stocks:

My point above was that the S-Fund was probably the best place to be for the time being, in my opinion.  Not shockingly, recent returns published on the TSP website reflect that out of fifteen fund choices, the S-Fund has been the top performer Year-To-Date for 2021.  Link:    https://www.tsp.gov/fund-performance/

Note that in my opinion, this will likely continue, and my personal TSP allocation is indeed 100% S-Fund.  I do not advocate day trading your TSP, and instead I seek to capture long term trends.  As many know, I am not afraid to use the ultra conservative G-Fund as a tool in my toolbox, even if it means foregoing gains in a riskier investment.  Presently, it is my opinion that being fully invested in the S-Fund, or a combination of S, C, and I  Funds, is something for the TSP investor to consider and research.  My own analysis of the various funds and index performance indicates that small cap and international stocks may outperform other categories in the next three to six months.  As outlined in FAQ #6, a new President (any party) can serve as a catalyst for a new Bull market.  Let’s take a look at a chart of the SPY Exchange Traded Fund, a useful proxy of the S&P 500 index:

As can be seen, this ETF, and the S&P 500 itself, has rallied since November.   Moving past this, a look at the weekly price of Gold reflects that investors are leaving Gold (a “safe haven” investment), which would seem to reinforce my theory that stocks are taking on a new Bull posture:

As I have stated in numerous prior posts, Crude Oil is a barometer of the economy, being a supply/demand product, many believe that low crude oil prices are indicative of poor economic conditions.   A check of the Crude Oil chart reveals a price uptrend since November 2020:

Additionally, another tool I use for a fundamental analysis of the economy is the Chicago “Business Barometer”, an index which measures manufacturing in the Midwest USA.  Values above 50 indicate growth of manufacturing activity.  The recent January 2021 release, comes in at 63.8, the highest reading since July 2018.  See image:

It is not my goal to bury the reader in charts and graphics, so in sum, my opinion is the stock market may see a new Bull movement, and go higher, in 2021.   My opinion is that the S-Fund will be the best performer, with the I-Fund and C-Fund, being second and third choices, for the near future.

With that said, what do you think the stock market will do in 2021 ?  I am interested to see what the audience thinks.  Please complete this poll (link below), which includes a comment feature if you are a Facebook user:

POLL: https://linkto.run/p/WZCV0DOK

Thank you for being a subscriber, if you find this post informative or useful, please encourage your friends and colleagues to subscribe.

-Bill Pritchard

Good Morning folks, I hope this update finds everyone well.  Now that we have the Presidential election behind us, let’s take a look at the markets and surrounding events.   Bottom Line Up Front:   The S&P 500 has risen 9.64% since November 2 (the day before the election), and small cap stocks appear to be the best performing category for the time being.

As many know, a few major events have occurred since the election, which is important because elections are major catalysts which influence the markets (see FAQ# 6):   The US Supreme Court recently denied a Texas lawsuit seeking to overturn the vote in Pennsylvania, Michigan, Georgia and Wisconsin.  Additionally, President Trump signed a stopgap funding bill keeping the federal government open until December 18, and the FDA approved Pfizer’s COVID vaccine.

As stated above, the markets have rallied since the election.  “Why” is a complicated question, however in a very general sense, the markets do not like uncertainty or unknowns.  Let’s take a look at the S&P 500 chart:

On November 2 (the day before the election) the index closed at 3310.24.   Since then, it has risen 9.64%, a respectable number given the fact that it represents approximately one month of days that the markets were open.   The energy and oil sector, an important jobs creator in Texas (and other areas), has witnessed oil prices subsequently rise, as demonstrated by the below Crude Oil and Energy Exchange Traded Fund (ETF) charts below:

I have posted previously on this site that a desirable price per barrel for Crude Oil is $55.   With the current price above $45, we are making some progress towards that desired level, which results in profits for our large oil companies (and jobs), and still keeps the price at the retail gas pump at a level affordable to the consumer.

The energy sector ETF, ticker symbol “XLE”, has risen also, propelled by oil prices and optimism in the energy sector.  Note that oil prices tend to rise in good economic conditions, and tend to fall when the economy is faltering.  Rising prices arguably may be a harbinger of things ahead.

Since the election, small cap stocks have outperformed all others.   Investment in small cap stocks is done via the S-Fund in the Thrift Savings Plan.  The TSP investor may desire to research this further and use that information as he makes his own investment decisions.   On a 30-day thru 90-day basis, the small caps are strongly outperforming the large cap (C-Fund) and international stocks (I-Fund), some weighting in the C-Fund might be a consideration for further research.

With the FDA vaccine authorization (and other countries also authorizing vaccines), this should further help the economy.   Current death rates from COVID, using CDC data, are approaching April 2020 rates:

Airlines, restaurants, in-person retail, hopefully will see a rebound once vaccines are widely available.  Not suffering is E-Commerce, as consumers order online and have everything shipped to their house.  E-Commerce was booming before COVID, now it is on fire; as it solves a problem and makes life easier for millions of people.  In summary, if you have a smartphone, you have a shopping mall, a grocery store, and a movie theater, all in your hand.  Pretty powerful stuff, the future of which is basically unlimited, in my opinion.

Regarding the federal budget, this is a huge unknown, however my opinion is the stopgap funding until December 18 will then expire and the government may see a shutdown after that.   Hopefully Congress can agree on the COVID stimulus package prior to that.  Again, my opinion, but the way I see this, the one week stopgap funding gets the federal workforce a full pay period “worked”, which will get the workforce paid for Christmas (EFT on/about Dec 24).   However after December 18, we have Congress who may wish to go home for Christmas break, and the fact that the “new” Congress takes effect on January 3, 2021 may also complicate things.   The January 20, 2021 inauguration is fast approaching also.  I guess my point/opinion is we have a lot of stuff going on ahead, and I am not sure if a shutdown can be averted.  My prediction (hope I am wrong):  We shut down on Dec 19 thru ??? possibly January 3, 2021.

This concludes my current assessment of the markets.  I hope everybody has a great weekend and is healthy and strong, as we wrap up a challenging year.

Please continue to share this website and email updates with friends and colleagues.  They can subscribe via this link:  http://www.thefedtrader.com/contact-us/

Thank you

-Bill Pritchard

Good Evening Folks

Well here we are.  Arguably one of the most watched elections in recent history, and with record voter turnout.  Let’s talk about what has happened and what the markets have been doing.

First, the Dow Jones “overnight futures markets” the night prior to the election (November 2) traded up, ranging from 150 to 200 points.  This continued into the regular stock market trading day of November 3, with the Dow Jones reaching 600 points to the positive during the morning.  This is a welcome change from the prior week, as it signals the week starting on positive footing.  Please see below S&P 500 chart of the recent roller coaster we have been on:

Tuesday’s action witnessed the Dow having the best trading day since July 14.  This action follows Monday November 2, which was also a strong up day.  On both days, volume was above average, indicating accumulation, or buying of equities by institutional investors.   Please see below chart of the SPY Exchange Traded Fund (ETF):

The day after the election, Wednesday November 4, witnessed the Dow Jones index trading 600 points to the positive.  The I-Fund, interestingly, ended the week as the top performer.  In addition to US markets, stocks in France and Germany also rallied.

Not to be outdone by equities markets, Crude Oil futures also traded higher, rising to $39 a barrel.  Note that crude oil typically behaves in unison with equities.

I have posted on this site before the fact that the markets typically outperform under a Democrat as President.  This is factually correct, however this should be clarified that the best performance is when a Democrat is President, with Congress under Republican control.  The market seems to prefer a checks-and-balance mechanism.  I am not advocating for one party or another (and the stock market is just one part of the universe, which must include law and order and a strong military), nor am I telling you who to vote for in the now-past election.  I am merely posting historical market facts.  See chart:

All of the recent action has been on above average volume, with the QQQ and SPY ETF’s gapping up.  This is a very bullish behavior, and is further explained at this link:  https://www.investors.com/how-to-invest/investors-corner/breakaway-gap-the-art-of-the-breakout/

The solid performance continued into November 5, with the Dow Jones going up 600 points.  That day, the tech heavy NASDAQ had its best 3-day run since April.

On Friday November 6, the markets “sold off” somewhat but this is reasonable to expect as most Fridays witness sell offs prior the weekends.  Combine this with the huge run up during the week- it is normal for folks to take some winnings off the table.

Now that we know what happened with the markets, what do I expect to happen with the election?  Let’s use parties, not names of candidates for this opinion based discussion.

Entering Friday night, the election results are still being processed.  Quite incredible in today’s age of modern technology.  At the center of my crystal ball is the State of Nevada.  Also important is Arizona.  Note that Fox News, my preferred source of news, has Arizona already called for the Democrats, which I agree with.  You cannot win Arizona without winning Maricopa County, period, the end.  62% of Arizona’s voters reside in that county alone.  And Pima County historically always votes Democrat (county overall).  Pima County represents about 16% of Arizona’s voters.  If Maricopa and Pima both prefer the same party, at 78% of the State’s voters, the math simply does not work for the other party to out-climb the wall in front of him via votes from the rural areas.  The various late night cable shows that “Arizona is still in play”….in my opinion it is not.

This takes us to Nevada.  With 6 Electoral College votes, if the Democratic candidate wins here, he wins the election, because per Fox reporting he already has 264 out of the needed 270 votes.  He is already ahead in Nevada.  Nevada is interesting because nobody who lives there, is actually from there.  Well, almost nobody.  Nevada has more residents from California, than from Nevada.   Guess how California typically votes.

We also know that even in Red States, such as Texas, the “metro areas” voted more Democratic than they did Republican.  This did not occur in Oklahoma and other strongholds, but those metro areas indeed were “less red.”   In most all states, outlying rural areas voted Republican.  Hold that thought.   Let’s return to Nevada’s “still counting ballots” situation.  As of Thursday night, Nevada elections officials stated that there were about 190,000 ballots still to be counted as the state continues to remain too close to call in the U.S. presidential election.  About 90% of those remaining ballots, or about 171,000, are from Clark County.  Source:  https://twitter.com/NVElect/status/1324459947493519361?s=20

Clark County is the county that the city of Las Vegas sits in.   With 2M+ population, this is clearly a metro area and as stated above, already has demonstrated a leaning towards the Democratic Party, at 53.7% Democrat, 44.5% Republican as of Friday November 6. 

Short version:  90% of the yet counted ballots are from Clark County, a Democrat leaning county of metro area Las Vegas.  We have documented history reflecting strong Democrat leaning in most metro areas across USA.  Also, most residents of Nevada, are actually from California.  Summary:  My opinion is Nevada goes in favor of the Democrats.  If it does, game over.

Arizona:  already a done deal, per my commentary above.   Per news media, Clark County will finish ballot counting on Sunday (Nov 8), and Pima County will finish on Monday (Nov 9).   So it may be a long wait over the weekend.

Georgia:  Despite a Democrat very slight lead, I expect this to ultimately go in favor of the Republicans.  Going back to 1984, from the electoral college standpoint, Georgia has voted for Republicans, with the exception of 1992 when they voted for Clinton.   For my purposes, I believe Georgia ultimately will finish ballot counting and it will favor Republicans.

In conclusion, we may know something in the coming days.  It will be important to study how the markets respond, and react accordingly.

If you have not already done so, please participate in my reader poll:  https://www.quiz-maker.com/poll3070068x478E43f6-95

Everybody have a good weekend….

-Bill Pritchard

Happy Columbus Day weekend everybody.   More and more I am only finding time to update this free website on major holiday weekends or during a “lull” in numerous family events that are going on right now.   Sports, music, Scouts, etc.  No excuse, so here we go with today’s update, where I share my opinion on what the market has done, and why.

This recent week (10-05 to 10-09) witnessed the market’s best week in 3 (three) months.   This is really great news.  Hence a good time for this update.  My overly conservative (I get beat up over being conservative on this free no-cost site, and about my “over use” of the G-Fund, oh well…) opinion that 75% G-Fund and 25% C-Fund is the ideal allocation is likely being met with frowns from the audience.  As such, the standard disclaimer remains:  Manage your own TSP as you see fit.  If you are a 22 year old Border Patrol Agent, with 35 years ahead of you, most of it at the GS-13 level and higher, maybe 100% G-Fund is not the place to be right now.  If you are 56.998 years old, retiring in a few months, maybe 100% I-Fund is not the best idea either.   Talk to you financial advisor, planner, etc.  With that said, a more aggressive approach, presently, will likely result in more gains, due to the market’s recent strong performance.   On a long term view, the C-Fund has been outperforming the other funds, however more shorter term, the S-Fund has been the top performer.   Sure, you can “invest all of it in the C-Fund and never look back” because “the C-Fund always goes up.”   News flash to thousands of mutual fund managers, CFP’s, retirement counselors, university MBA and finance programs, and Jim Cramer:  you can all quit now, your services are not needed….we have found the magic recipe for investment success.   I digress…

Important:  Historically speaking, when small cap stocks suddenly display a fresh energy, and outperform large caps, this is one indication of a new market uptrend underway.  Let’s take a look at a chart of the S&P 500:

As you can see, the market crashed somewhat, most of September.  Most believe this is associated to political fighting over the COVID stimulus package.  While opinions abound from both sides (and I have my own also…) regarding socialism and “bailing out” businesses, versus letting free market forces take effect, at the end of the day this is America and we have a duty to protect the weak and defenseless.  What does this mean?  It means that we have thousands of unemployed folks, with no medical care, no paychecks, and an uncertain future, because of the COVID situation.  Small, entrepreneurial businesses are especially hit hard.  The bakery that closed because no more birthday parties, and no more cake orders.  The local restaurant that just couldn’t make it thru the shutdown.   Etc.  As such, some positive energy exists that the stimulus package will be signed and put into effect, helping trigger the market’s rebound.

COVID itself appears to be under control, at least overall, across America.  Some states (South and North Dakota) have seen a spike, but if we can keep the COVID cases under control, ideally below 5% positivity rates, more calm will return to the markets.  We only recently went below 5% (overall for the country) in August.  See chart:

So two elements to the market’s continued health include the control of COVID, and the stimulus bill itself.   Which brings us to the next element, the election.  I will attempt to be bipartisan and agnostic as I discuss this market driver, and keep the elements of my discussion to be economic/market focused.  Observe in my FAQ #6, political change indeed is a huge catalyst for the market.

Historically, the markets do better under a Democrat President, versus a Republican.  Lets return to our discussion of the recent uptrend.  It began on September 24, a Thursday, then we had the weekend, then on September 29, a Tuesday, we had the first Presidential debate.  I am not going to comment on who won or who did not win, but the pollsters at Real Clear Politics aggregate all the polls around the country and develop their own score regarding which candidate is seen more favorably by the voters.   Since the debate, Biden has been outperforming Trump in the polls.   Simultaneously, the stock market uptrend which got started a few days prior to the debate, has grown stronger.   See chart:

Is there any linkage between the market uptrend and the recent polls (assuming the polls are accurate) ?   Maybe yes, maybe not.  The polls have not negatively impacted the market uptrend.  So while you and I may have our own personal preference at the voting booth, the stock market may be deciding its own preference right before our eyes.

With that said, the election is 23 days away.  Basically two pay periods and the next Commander in Chief is elected.  In my opinion, the election will rest on the states of Florida, Ohio, and Iowa.  All are “toss up” states and contain a large number of Electoral Votes within.  Most political analysts consider Florida a “must win” for any candidate; one cannot be President without winning Florida.  So once that is done, Ohio and Iowa will be important.  Pennsylvania is important also, with 20 Electoral Votes.  Hence the state’s name was mentioned three times at the first VP debate.  However, sometimes politicians have a detachment from reality- fracking jobs are a direct result of the price of natural gas, a Pennsylvania leading industry.    Natural gas prices have been in a decline since the year 2008, simply a matter of supply, demand, and pipeline infrastructure.  See chart:

Not sure any politician, from any party, can wave a magic wand and bring the natural gas and fracking industry back.

There you go folks….two pay periods of time and we have a new President.  The markets have been doing very well in recent weeks, hopefully this continues.

I wish everyone a great weekend.  If not already done so, please complete my poll regarding your sources of TSP information.  Link:  https://www.quiz-maker.com/poll3070068x478E43f6-95

Thank you for reading !   Talk to you soon…

-Bill Pritchard

Good Afternoon Folks

My apologies for a delayed update- the summer has been very busy for me, it seems that I no longer get “me time” anymore-  I know many are in the same situation.  Add the “lock down effect” into the mix, once the local parks and recreation areas opened up (with appropriate safety measures in place) for use, my family was out of the house.  I even almost near-drowned being towed behind a ski boat (my skills are market analysis, not water sports behind a ski boat) as I enjoyed my freedom.  COVID has reminded me to appreciate the outdoors…just simple walks outside have become very enjoyable.  Before COVID, if my neighbor asked me to “go for a walk” I would look at him like he had five eyes.

Back to the markets and the TSP.   Note that I have included a Poll link at the end of this update.  Please complete this poll, as it helps me stay in tune with my audience.  I had a reader email me regarding “other TSP sites”, as one site (or discussion forum?) he mentioned has demonized being conservative and having the majority of your TSP in the G-Fund.

I do not subscribe to negative energy, so I told the person above who emailed me (he was close to retirement) that he needs to talk to a professional advisor for an official opinion, with that said, he needs to do what he is comfortable doing.  This reader correctly identified the fact that we are in a “pandemic” and in a global recession.  Remember, the TSP site itself identifies the G-Fund as being useful for preservation and stability of your money.  I did not invent or patent the non-cosmic idea of being conservative.  With that said, please complete the Poll at the end.

Let’s continue on to my opinion based analysis of the markets….

Allow me to start with the chart of the “Spider” “SPY” Exchange Traded Fund (ETF) with tracks the behavior of the S&P 500 Index, my default barometer for the markets.  Volume analysis of the SPY is a little easier for me, hence my use of it:

As can be seen, the markets rallied in late March, triggering an uptrend which still exists.   The top performing TSP funds are S-Fund as top performer, and C-Fund as next best performer.  It is important to note that summer volume has been rather light in the markets, adding credence to the theory that retail investors, versus institutional investors, are the active participants in recent months.  This means “smart money” is staying away.   To dispel/prove this, lets take a look at the price of the de-factor safe haven currency, Gold, something most retail investors do not dabble with:

Based on the gold chart, it appears Gold has rallied since March (interestingly, so has the stock market…hence my “retail investor” theory).   Gold rallies when economic conditions are poor or worrisome, which indeed they are.   Allow me to use this as an opportunity to state that the stock market and the economy, are two different things.  Yes, they often behave in unison (RE:  2007-2009 Financial Crisis) but at times they do not.  This is known as “decoupling” and that is in effect now.   To begin my economic discussion, lets take a look at the GDP chart:

Recent economic reports and indicators paint a bleak picture of the economy.   The most recent GDP report reflects a -32.9% contraction in economic activity during the second quarter.  This follows -5% GDP for the prior quarter.   Two consecutive negative GDP reports fulfill the textbook definition of a recession.  As such, the United States is currently in a recession.   Important to note is that this is almost entirely the result of the COVID situation, and not anyone’s “fault” or from any mismanagement.  The CEO of American Airlines cannot be blamed because nobody is flying right now.  When a local bakery closes its doors, and goes out of business, because the town is “locked down” and nobody is buying custom birthday cakes for now-cancelled birthday parties, it is not the bakery owner’s “fault” the business closed.   That is why this COVID situation is so delicate, it threatens our health, our economy, and more importantly, our futures.  With that said, the cold hard truth is that the U.S. is in a recession.  Furthermore, the International Monetary Fund (IMF) has stated a recession exists globally.  Since 1900, no sitting US President has won re-election to a second term during a recession.  None.  This is important as we make investment decisions in October and face a possible change in administration.  Whether the current President gets penalized for this recession, it still yet to be determined.

Unemployment data (again, not anyone’s “fault”) is at all time highs, however has started to recover since March:

Currently, 10.2% of the labor force is capable of being employed, but is jobless and unemployed.  This is down from 14.7% back in April.   Irrespective of cause or “fault”, 16.3M people in our country are unemployed, which impacts discretionary spending and other things, which have impact to the economy.

With that said, school is opening soon and soon we will know if, and to what extent, COVID impacts our youth, as schools have been out of session since March.   This may play into further “shut down” decisions.  Thankfully, kids seem to have a resilience to COVID, typically not getting sick at all.   Some theorize this is associated to numerous vaccines obtained at a young age, for whatever reason, these vaccines may be help keep COVID away.  In any event, we will know soon enough.

For the reasons above, my allocation of 75% G-Fund and 25% C-Fund, similar to an L-Fund, will continue.  I am optimistic about our great country, and about our ability to overcome obstacles.  I hope a vaccine is developed soon, and that we can resume life as we used to know it.

Thank you for reading, I hope everyone has a great rest of their summer.   Please complete the poll below.   Thank you

POLL:   https://www.quiz-maker.com/poll3070068x478E43f6-95

– Bill Pritchard