The S&P 500 (TSP C Fund) appears to be topping after its strong rally and should correct next week. The S&P 500 Bullish Percent Index (red & black) topped out on Thursday at 76%, the same level of the last three market peaks (see black horizontal line). The S&P 500 index (solid black) hit resistance on the upper side of its trading channel (red lines). A revisit to the lower channel would require a 4% correction from Friday’s close.
For February’s performance to date, the three TSP equity funds are basically tied. All of the I funds relative gains took place in January. We saw a shift in performance from the US equity funds to fixed income F fund this last week, typically a sign of growing risk aversion. Anticipation of QE may give the TSP I fund a boost over the next few weeks, but I do not anticipate it will help the Euro area economy. Advisors are trying to get European CEOs to increase stock buybacks with both their cash on-hand and by borrowing at the current low interest rates. It remains to be seen if this will happen, but it might allow the I fund to start keeping up the US equity funds.
The US GDP for the 4th Quarter was recently revised down to 2.2% from 2.6% while the S&P 500 companies reported good earnings growth in the same quarter (Aug – Sept 2014). But those same companies continue to revise down both earnings and revenue estimates for the 1st and 2nd quarter of 2015. On 31 Dec, estimated 1st Quarter earnings growth was a positive 3.9% now revised down twice to negative 4.6% earnings. They are also expecting negative revenue growth for the next 3 quarters. The market has ample reason to correct far more than 4%.
Categories: TSP Charts