TSP

Most investors are probably best served by making sure their portfolio has the appropriate level of risk for their age and rebalancing semi annually, rather than attempting to actively manage investments and time the market. Investing in a LifeCycle fund, for example, automatically rebalances between multiple asset classes.

Lyn Alden

Stocks pushed higher last week with a sustained bull market, as shown here by the S&P 500, which the C Fund tracks:

FEDweek: The Bull Market Continues as the Job Market Tightens

Chart Source: Google Finance

ADVERTISEMENT


It took a breather on Friday with a mild decline, though, as the December jobs report was released and came in below expectations. Economists were expecting a net increase of about 160,000 jobs for the month, but the report came in with only 145,000.

Manufacturing, transportation, and mining industries continued to shed jobs. The retail industry had a big boost in hiring due to the holiday season. The major surprise was that professional and businesses services, which are normally one of the strongest areas of job growth, had a very tepid increase during the month with only 10,000 new net jobs. In particular, many investment banks have been trimming their highly-paid workforces.

CNBC does a great job of plotting where jobs were added or subtracted:

FEDweek.com

Chart Source: CNBC

These types of reports have a wide margin of error, so data from any given month only tells us so much, and it’s the trend that is worth focusing on.

For example, after nearly ten years of continued declines in monthly jobless claims, the past 18-month period has seen a flattening out of this trend, and in recent months we have seen a small upward tick in jobless claims. This may represent the beginning of the bottoming process of current employment conditions.

Federal jobs are fortunately more secure than private jobs during periods of higher unemployment, so it’s possible that the next few years end up being one of those periods where having a federal job really pays off for many positions.

Chart Source: St. Louis Fed

Additionally, the year-over-year percent change in total job openings has turned negative in recent months, and hasn’t shown signs of stabilization yet:

Chart Source: St. Louis Fed

Some of this information may be useful for career planning. It’s helpful to know if the job market is strong or soft when deciding whether to leave your existing position for something else, for example. Right now, while absolute numbers are great, with low unemployment, low jobless claims, and plenty of job openings, the rate-of-change situation for those metrics is becoming less favorable.

For investment planning, it’s a lot tougher.

Historically, the stock market tends to peak for a cycle within months of the unemployment rate bottoming, so watching unemployment can be useful for tactical asset allocators. Jobless consumers buy fewer items from companies, which hurts corporate earnings, but just as importantly, they generally stop contributing to their retirement accounts, and sometimes withdraw from those accounts, which removes money from the stock market.

Most investors, especially those who don’t want to watch economic indicators every week, are probably better off by just making sure their portfolio has the appropriate level of risk for their age. Investing in a lifecycle fund, for example, automatically rebalances between multiple asset classes, and is less volatile than a 100% equity portfolio.

See also, TSP Lifecycle Funds Work as Advertised

Additionally, personal finances are arguably more important than investment positioning during weaker economic periods. How much cash liquidity you have, how low your debts are, and how secure or diversified your income is, are all things worth considering and strengthening at this time.

See also, The Pros and Cons of the LifeCycle Funds

Lyn Alden is a financial writer and an engineer, and holds a bachelor’s in engineering and a master’s in engineering management, with a focus on financial modeling and resource management. She specializes in analyzing and presenting financial data. Her investment work can be found on LynAlden.com.

TSP Investors Handbook, New 6th Edition