New Allocation: 25%C Fund, 25%S Fund, 25%I Fund, 25% F Fund
This ALERT is based on several factors that I will lay out in the charts below. The spark that finally got me to reallocate into the stock funds was the FED Chairman’s remarks on Wednesday afternoon. The result of which caused interest rates to drop significantly.
1. As I discussed in the Sunday Update a couple of weeks ago, to be on the right side of the long term trend, you need to be in the stock funds when the weekly closing price is above the 40WMA. The C fund closed above this level last week and I was looking for a good day this week to reallocate.
2. The key points of FED Chairman Powell’s speech on Wednesday afternoon included no new rate hikes for the foreseeable future, stop liquidating Treasury holdings in September, and use its Mortgage Backed Securities portfolio proceeds to buy more treasury securities. This is a way of allowing more money into the system without increasing the FED’s balance sheet. It’s a new form of quantitative easing. When the FED eases monetary policy, interest rates come down as can be seen in the 10 year treasury chart below. This means that stocks become more attractive as an investment than bonds.
The F fund saw a significant spike on the FED announcement which is why I decided to allocate 25% to the F fund. With treasury yields beginning another leg down, the F fund should continue higher from here.
3. The S&P500 (C fund) jumped higher on the news, closing up over 1% on Thursday with tech stocks leading the way.
Bottom Line: The FED is trying to keep the rally going. The FED usually gets what it wants…
So if all this is true, why did the market tank today (Friday)? What is known as “an inversion of the yield curve” is one important indicator of a slowing economy and possible upcoming recession. We’ve been hearing about a slowing global economy for over a year as the yield curve has flattened but stocks continued to rise in the face of it. The yield curve inverting on Friday is significant but does not imply that a recession is imminent. For more on this, checkout this CNBC article.
I will be watching the C fund chart above very closely. If prices stay above the Support / Resistance line and the 50DMA crosses the 200DMA on the upside, we are in good shape. If prices fall below the 200DMA, I will be looking at getting back into the G fund.
Please post questions to comments or email. Have a great weekend!
Jerry
It seems like almost 100% of the time when you recommend investing in the market, it drops after the investment. I have been following you for about three months and have been very disappointed. I would like to know how well you have done in the market over the past 6 months. Thanks
This is my retirement.
Eric,
This is a marathon, not a sprint. My PIP for 2018 was up almost 5% while the C Fund was down over 10%. There are many ways to play the TSP game. I share what I am doing with my personal TSP account to Site Members, is it’s my retirement. You are free to follow along with what I do or use the info and make your own decisions.
Thanks Jerry. It is gonna take time, but slowly I am getting better grasp of concepts while I follow your TSP activities.
Global growth is slowing, so why anything in I fund? Why in F bonds? I don’t follow your reasoning. Seems like C and S are performing.
Dawn, When I reallocate to the stock funds I generally do an even distribution. In this case, I included 25%F for the reasons explained in the Alert and this weekend’s Sunday Update.
Hi Jerry, so did we do a good thing by this reallocation or not? Thanks, Tracy.
Hi Tracy,
We have to let things play out a bit. As long as the price is above the 40WMA (Week Moving Average) line, while the line is trending up, we are on the right side of the trend. Keep watching the charts.
I’m going to be unable to make and changes to TSP for about 15 days what do you advise putting in G fund?
Yes.. If I were going out of town and had no access to TSP, I would reallocate to the G Fund. You’ll be able to sleep very well at night not worrying.