The equity funds in the TSP continue get rocked by volatility.
The S&P 500, which the C Fund tracks, has broken through its previous low to continue its decline. It is now within a few percentage points of bear market territory, meaning down 20% from all-time highs.
The Dow Jones U.S. Completion Total Stock Market index, which represents smaller companies and is tracked by the S Fund, has fallen an even larger percentage and is approximately touching bear market territory:
The MSCI EAFE index, which represents international companies in developed markets and is tracked by the I Fund, has looked similar to the C Fund, with a decline that is not yet in bear territory, but certainly troubling:
The coronavirus continues to spread worldwide and in the United States, but its overall impact is not yet known.
Hospitality and travel stocks, including airlines, casinos, hotels, cruise operators, travel websites, and restaurants, have been hit very hard, and in many cases are 20-50% down from their all-time highs.
Multiple events continue to be cancelled or held virtually to avoid spreading the virus, and many corporations have reduced or eliminated travel for their employees.
Similarly, commodity stocks have been largely crushed across the board. The global economic slowdown, especially in China (the world’s largest raw commodity importer), has negatively impacted commodity prices, ranging from oil to copper and more.
Historic Price Drop in Crude Oil
In addition, OPEC failed to reach a deal with Russia to curtail oil production last week, and instead decided to engage in an all-out price war by increasing supply, so the price of oil fell to multi-year lows as supply is expected to dramatically outpace demand. Two months ago, oil was over $60, and now it is down to just over $30. This is one of the most historic oil price declines of all time, and puts the entire global energy industry at risk of severe financial trouble.
Defensive stocks, including sectors like utilities, consumer staples, and healthcare have largely held up better.
In addition, bond yields dropped dramatically during this past week, meaning that their prices went up. That is why the best performing fund last week was the F Fund, with a sizable 1.9% gain last week, which is huge for a bond fund. Gold is also trading around multi-year highs.
Solid (Pre-virus impact) Jobs Report
If there’s good news here, it’s that a better-than-expected jobs report came out this past week, representing February’s gains. Job growth re-accelerated according to the report compared to previous months, with broad-based gains across most industries.
As usual, CNBC has a nice visual breakdown of where the jobs were gained and lost:
However, this jobs report was mostly before any virus impact in the United States, so the March and April jobs reports should be more telling. In addition, the massive decline in the oil price puts hundreds of thousands of energy jobs at risk, particularly in Texas, North Dakota, and other energy-producing states.
The bond market is continuing to show severe concern for the months ahead, with a huge decline in yields, while the equity market is showing substantial concern, but not yet outright panic.
It’s unclear which one of these two markets will be “right” when we look back later this year, but investors that hold a diversified portfolio, and benefit from rebalancing, can take advantage of this volatility over the long run even as the short term is painful.
As always, it’s important to maintain a portfolio that is risk-appropriate for your age, goals, and unique financial situation.
Charts: TSP Fund Performance