This is your TSP Watchdog UPDATE for the week ended March 6, 2020.

Stocks were all over the board this week.  By Friday’s close, the S&P 500 was UP 0.61%.  The Dow was UP 1.79% and the NASDAQ was UP a modest 0.10%.

The final numbers, however, do not hint at the market’s volatility during the week.  The Dow had two 1000+ point UP days, two 3% plus DOWN days and finished the week with its smallest move on Friday – DOWN ONLY 257 points:

MON                     +1,294
TUE                       –   786
WED                     +1,173
THU                       –   969
FRI                        –   257

The coronavirus – Covid-19 – was the key factor behind all this movement, or course.  The continuing spread and corresponding responses from governments around the world, the growing evidence of economic impact and fears of recession, or worse, are all playing on investors.

Compounding the situation is the tangential impact on the oil markets.  With economic activity slowing, oil demand is decreasing.  The newly forged alliance of OPEC-plus (OPEC and Russia) is splitting on how to respond to the current environment.  OPEC wanted production cuts.  Russia did not.  In response, Saudi Arabia is opening the spigots and ratcheting down prices to 12-year lows.  The ball is now in Russia’s court.

The bigger financial picture for both the Covid-19 fallout and lower oil prices is the impact on the credit markets (debt).  A recession makes it more difficult for companies to repay debt.  Low oil prices make it more difficult for oil companies to repay debt.  With debt at all-time highs, the risk of rising defaults is real, and the ultimate impact would be a deeper hole for the economy to crawl out of – even after the coronavirus has played out.

One widely propagated myth that is laid bare during volatile times like this is the notion that “buy and hold” investing is important because moving out of the market for any reason risks missing the market’s “best days”.  There have been all sorts of reports distributed showing that if an investor misses only the top 10 days (or 20 days, or 25 days – pick your number) their returns are lowered dramatically – thus underscoring the importance of participating in these “best days”.

But, as you can easily see in the movements this week, missing big UP days like MON and WED – which will certainly be “best days” of this year – also involve missing large DOWN days because big moves in BOTH directions tend to cluster together.  This means that someone who is out of the market this week missed both big good and big bad days – which netted out to a moderate move for the week.  Simply put, because high volatility produces big moves in BOTH directions, UP and DOWN, in real time, the impact of missing the “best days” is almost entirely offset by the also missing the “worst days”.  Apologies to buy and hold aficionados…

In our TSP Watchdog database, we have no trend changes this week.  All the primary TSP funds (C fund, S fund, I fund and F fund) continue on negative trends.  We did not see a dramatic follow through on the previous week’s disastrous selloff, but we did not have a significant bounce either.

Among the L Funds – the L Income and L 2020 funds are in a neutral band, hovering right around their trend lines.  The L 2030, L 2040 and L 2050 are all below their trend lines – on negative trends.

If you followed our suggestion last week and sold right away on Mon, you actually avoided the net decline that came during the rest of the week.

Also, if you are safely sitting in the G fund now, you can watch the wild action that occurs in the weeks to come without worrying how it impacts your TSP account.

Any time we issue a recommendation – whether it is to BUY or to SELL – we feel a sense of trepidation.  We worry that the market is poised to reverse itself sharply, and our recommendation will come right as the market pivots back against our suggestion.  In this instance, at least for the first week, moving out of the C fund, S fund and I fund looks to be a wise move.  Going forward, you will not have to worry about how the market drama surrounding the coronavirus will impact your TSP because, sitting in G fund, you will not be impacted.

There is no way to know how long it will take for this situation to play out.  But, we can tell you that “this too shall pass”, and at some point, the markets will get back on track.  When that happens, we will alert you so you can participate in the recovery.

Until then, rest easy in the G fund.

…and feel free to reply to this email with any questions you might have.

Scot B.