TSP Charts: Quantitative Easing and TSP Funds

By Michael Bond on November 6, 2014

Recent QE Timeline

Japan “surprised” the markets with an expansion of its own version of Quantitative Easing the day after the Federal Reserve ended QE3. And while we will not go into the real reasons for the surprise, we will take a look at QEs recent effect on the stock market. The recent correction in the S&P 500 index (C Fund) was less than expected at only 7.5%, but on time during the weak equity season. The bounce back was rapid and strong showing the bullish sentiment remains high. We wondered with the end of QE3 and the unrelenting run up in the market since late 2012 would the strong season in equities-now in place-continue its track record. It now seems the baton of QE was handed off to Japan last week and the end of QE will not be a reason for a larger correction anytime soon.

But does QE guarantee a bull market? We do not think so. Loose monetary policy did not stop the last two bear markets, but may have extended the bull markets and lessoned the losses. Financial gravity still exists and the equity funds are well above their long term trend line and historical mean valuations. But we are in the strong season for equities and the mid-term election year has the best track record of the four. But again we climb the wall-of-worry that this political-fiscal cycle might be different due to some conservatives demanding fiscal restraint. With the Republicans in control in both houses, we now see the strong probability of increased Defense Activity and of course Spending. Funny how the pieces fall into place as we begin the strongest of seasons for the stock market.

Below we see a chart of the Thrift Savings Plan C Fund. The uptrend was broken in October at the end of the weak season in equities and a lower low was established with the 7.5% correction. The bullish sentiment in the markets resulted in a sharp bounce both piercing the trend line and establishing a new high in the C-Fund. Some of the inflows may be from Europe as their economies and stock markets remain weak as seen in the I-Fund results.

TSP C Fund

All of the equity funds bounced back after the last correction, but to varying degrees. The TSP S Fund has yet to establish a new high and the TSP I Fund has not pierced its downward trend since July. The TSP S Fund has a good chance of establishing a new high by the end of the year, if not much sooner. This would signal the bull market in US equities has at least one more leg in it. We believe the I Fund will continue to underperform the US equity funds since the US economy is on stronger footing and money tends to flow to the safer large cap US stocks in times of uncertainty.