TSP

The question going forward is whether we can get a fourth mini growth cycle in what has become the longest economic expansion without a recession in U.S. history.

Lyn Alden

The S&P 500, which the C Fund tracks, briefly reached new highs recently as the market largely shrugged off concerns about the ongoing Wuhan coronavirus outbreak.

fedweek.com: coronavirus and the tsp

Chart Source: StockCharts.com

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Small cap stocks, tracked by the S Fund, have lagged their large cap counterparts in the past couple years. As of yesterday’s close, however, they touched new all-time highs for the first time since 2018.

fedweek.com: small caps tsp all time high s fund

Chart Source: StockCharts.com

Potential Economic Rebound

The U.S. economy has continued to grow, but at a decelerating pace over the past 12-18 months. This business expansion is pushing into its 11th year, and has had three periods of accelerating and decelerating growth or “mini-cycles” within it.

The question going forward is whether we can get a fourth of these mini-cycles in what has become the longest economic expansion without a recession in U.S. history.

Fortunately, good news came out of the Institute for Supply Management (ISM) last week. Both their manufacturing and non-manufacturing surveys showed a strong rebound in January from troublesome low levels in late 2019:

Chart Source: TradingEconomics.com

It’s unclear if these bounces will be sustained or not, especially with the Wuhan coronavirus continuing to disrupt global supply chains, but these are certainly good readings to see compared some of the other data out there.

Virus Impacts

The Wuhan coronavirus outbreak has now officially killed more people than the headline-grabbing SARS of 2003 did, but is still only a fraction of the number of people that die globally from the seasonal flu.

The disease has a higher fatality rate than the flu, however, so the Chinese government has taken extreme measures to contain it, ranging from quarantining cities the size of New York City, to delaying the return to work in many provinces.

The severity of the response, along with other variables (such as a shortage of testing kits) have led many investors to question if the official statistics are significantly under-reporting the actual toll from the virus.

Either way, popular U.S. companies like Apple, Starbucks, McDonald’s, and Tesla have had to close stores in China. Many of them have also had their manufacturing facilities disrupted, and it remains to be seen if they will be able to return to work this week as initially expected, or if work could be further delayed. They were already on hold due to the extended lunar new year, so the question is whether the virus is contained enough for workers to resume this week or next, or not.

Companies in the C Fund receive over 40% of their revenue from outside of the United States, and China is both a major end-market for many companies as well as a big piece of the supply chain for other end markets, so until more information about the impact on China is known, it will be especially challenging to predict the performance of these companies over the next quarter or two.

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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.

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