Good Evening, The market traded mixed today as investors weighed a higher than expected inflation report against remarks from Fed Chairman Jerome Powell indicating that a rate cut is likely during the July 30-31st FOMC meeting. The market continues to move up and down in reaction to every headline speculating on how the news will influence the Fed’s decision on interest rates. So, many of you are asking why then did we reenter the equity market today? Bond yields which had been moving lower reversed to move higher cutting through overhead chart resistance in the process. The fact that bonds and stocks have been moving up together is a somewhat rare occurrence. Normally when stocks move up the price of bonds moves lower. This takes place as bond yields move higher. Bond yields and price always move in opposite directions. The recent trend of lower bond yields and rising stocks as I mentioned is not the norm. I believe the reason this has been taking place is the market betting on the Fed cutting rates. Which brings me directly to the question you asked. Why are we moving back into equities when there is no trade deal or actual rate  cut? In my last blog I mentioned a third reason why I might move into equities as long as the the charts were still on buy signals. That was a reversal in the direction of bond yields. In a rising bond yield environment the price of bonds drop and bonds are sold. Much of that money then flows into stocks. So if you are thinking, wow, if the market has been rising without the bond money then imagine what it will do with it, then you are on the right track. In every case that I can think of when the falling bond yields finally reversed and moved up if fueled a rally in which the market gained from 40-50%. That’s right, that’s what I said!!! In every case! Does that guarantee that it will do it this time. No, what’s happened in the past never guarantees what will happen in the future but it does indicate with a high probability that will be the case. I will tempter that statement with one disclaimer. In order for this to take place we need for Bond yields to continue to rise. Otherwise, the haven’t really reversed. Right?? If that happens and we didn’t really catch the bottom of the bond yields then the deal is off. That said, my yield chart for 10 year treasuries is pointing higher. So I’m bullish on stocks. It’s anybodies best guess as to how the upcoming Fed meeting might effect yields. Conventional wisdom would tell us that they would move lower. But has anything about this market been conventional?? Hey, nobody ever said this was easy. Also, one last thing about bonds. The current action is forcing bond prices lower. So that makes stocks a more attractive place to hang out. For that reason we put in an interfund transfer today to move out of the F Fund to 100/C. We’ll see what happens and I bet if won’t be dull…..

The days trading left us with the following signals: Our TSP allocation dropped -0.37% as the above mentioned action put downward pressure on bonds. For comparison, the Dow gained +0.85%, the Nasdaq slipped -0.08%, and he S&P 500 added +0.23%.

The days action left us with the following signals: C-Buy, S-Buy, I-Buy, F-Neutral. We are currently invested at 100 but have entered an interfund transfer to move to 100/C which will be effective at  tomorrow’s market close. Our allocation is now +12.89% on the year not including the days results. Here are the latest posted results:

God bless, Scott 

 

 ***Just a reminder that you can review the performance of our allocation at the Web Site TSPTALK.com in the autotracker section under the screen name KyFan1.

 

 

I produce and publish this blog as both a ministry and for the benefit of any Federal Government Employee. This is done to offer you some guidance as to how to approach your retirement more financially successful. When it is time for you to retire, I recommend you utilize the services of a Professional Money Manager, who works with a reputable investment firm. He understands the guidance you have already received and he can manage your savings assets utilizing a more advanced investment program into the future. 

 

If you would like to receive more information about this introduction, please feel free to contact me at  [email protected].