It was a very strong week for the TSP funds across the board! For the week the C fund was up 2.2%, S fund up 1.83%, I fund up 2.49%, and F fund up 0.50%. The S&P500 (C fund) ended the week at a new All-Time High of 2950.46. In fact, the C fund has just posted its 4th new all-time high in the past 2 years! While this is great news for TSP investors in the C fund, several major market indexes have NOT put in consecutive new highs. The major indexes should confirm each other. When this does not happen, it is called a Divergence. We talked about Divergence a bit last week and we’ll go deeper this week.
Bottom Line Up Front:
The C fund hitting new All-Time highs is significant and tracks right along with the 2 Possibilities we have been discussing since the 05 May Sunday Update. PLEASE go back and read the 09 June Sunday Update! Both of these possibilities are still in play. What happens with the Divergence between the C fund, and the S and I funds, will drive which possibility ultimately plays out…
Confirmation and Divergence
The TSP stock funds do not move up and down in lock-step but, they should generally move up and down together over time. Each fund should CONFIRM the move of the other funds. When they move in opposing directions (DIVERGE) over time, pay attention because there is significant shifting going on in the underlying market.
The weekly charts below show all 3 funds hitting a new high in January 2018. All 3 then broke down but found support at their respective 50WMA (Week Moving Average). By September of 2018, the C and S funds had fully recovered and gone on to make new highs. The I fund Diverged, struggling at its 50WMA and never recovered. In October all 3 funds collapsed, taking out their respective 50WMA, prior low in 2018, and hitting their 200WMA. The funds Confirmed each other in the collapse, with each bottoming out in December 2018. The January to May 2019 rally brought the C fund again to new all time highs. This time, the S and I funds both had lower highs before rolling over (divergence). The S and I funds are not confirming the upward trend of the C fund.
The divergence is clear in the charts below. What does this tell us about the growth of the TSP stock funds going forward? The market is rotating from riskier assets to more stable, conservative assets. The C fund tracks the S&P500; the 500 largest, most established and stable companies in the US. The S fund tracks the Total Market Index which includes much more tech and smaller companies than the S&P500. The S tends to be more volatile and riskier due to the companies in the index. The I fund tracks the Europe, Asia, Far East Index. The I fund tends to be riskier than the C fund because those country’s markets are generally not as stable as the U.S. The C fund is making new highs while the S and I funds are lagging because investors are moving their funds out of riskier assets and into safer assets that are reflected in the C fund. The problem is that safe assets do not drive index prices higher in the long run.
If the S and I funds roll over in the short term, the C fund will likely follow. This is in-line with the 2nd possibility that we discussed in the 09 June post. If the S and I funds continue to rally higher then the 1st possibility would be in play.
Watch the C and S funds very closely over the next several weeks!
Have a great week!