TSP

Equities hit a rather deep bottom before most of these job losses were filed and has since been pushing back up to recover some of its losses - although bear markets tend to feature multiple sharp rallies before finding bottom.

Lyn Alden

The initial jobless claims in the United States are reported weekly, and the past three weeks have seen record claims. Three weeks ago it was 3.3 million, two weeks ago it was 6.8 million (revised up from its initial report of 6.6 million), and this past week saw 6.6 million more, totaling 16.7 million jobless claims.

The normal “churn” for jobs being created and destroyed in a good economy can be 200,000-300,000 or more, so factoring out that those baseline job losses leaves us with about 16 million jobs lost specifically due to this virus-related economic shutdown.

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This chart shows the weekly jobless claims, with the recent seven-figure numbers basically breaking the five-decade chart:

Chart Source: St. Louis Fed

The stock market, however, tends to front-run economic data. Equities hit a rather deep bottom before most of these job losses were filed and has since been pushing back up to recover some of its losses.

The large-cap C Fund, which tracks the S&P 500, has had the best performance year-to-date out of the three TSP equity funds, although it still remains below its 200-day moving average:

Chart Source: StockCharts.com

If we look at all five of the TSP funds, the F Fund has been the outperformer year-to-date due to a decline in interest rates (which are good for bond prices):

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Chart Source: FEDweek

The challenge of course is that most bear markets consist of multiple sharp “bear market rallies”, which gives an impression that the index might be recovering before it falls back down and makes lower lows before hitting its actual bottom for the cycle.

Analysts face a particularly difficult path this year, as many companies will have deeply impaired or negative earnings for 2020, so an analyst must determine what the company is worth based on a long-run stretch of multiple years of earnings.

Further complicating it is the unprecedented amount of support from the U.S. government and Federal Reserve. The market is awash with newly-created dollars being used to buy treasuries, corporate bonds, and municipal bonds.

Last week, the Fed even announced that they’ll be buying a certain type of junk bond called a “fallen angel”, which refers to companies that were recently investment-grade and has just recently been re-assigned to speculative-grade or “junk” status.

So, companies who might otherwise fail, are being thrown multiple lifelines. However, not all companies are safe. For example, the country’s largest movie theater chain, AMC, has been reported by multiple sources to be in talks with a bankruptcy firm to explore a possible bankruptcy filing.

XFL, the smaller football alternative to the NFL, just filed for bankruptcy.  Smaller or less well-capitalized companies are among the most vulnerable.

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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.

TSP Investors Handbook, New 6th Edition