It has been a roller-coaster ride for TSP investors.–both for the year and for the month of June.
As we pointed out in a recent article, TSP stock funds were down for significantly earlier in the month of June. Then, toward the very end of the month, stocks quickly turned around.
The result is that most of the TSP funds had a positive return for June. Here is a quick summary of the results for June.
In other words, the I fund has done very well for the past twelve months with a 26.57% return but with no return (or loss) for June. The S fund is the second highest for the past year with a return of 14.43%. And, the popular C fund eked out a small gain for June but is up 8.59% for the past twelve months.
The L funds all had a positive return for June. Here are the results for the lifecycle funds:
What are the reasons for the volatility in the stock markets this year?
High oil prices, missle launches from North Korea and continued instability in the Middle East have all contributed. But perhaps the most impact in the past several months has been from our own federal government.
Federal Reserve Chairman Ben Bernanke took office on Feb. 1. He has been issuing statements that have surprised the markets. He initially indicated there would be a break in the rising interest rates from the Fed in the past two years. But in May he changed and began warning that he was seeing signs of inflationary pressures that could keep the rate increases coming. Then, after the Fed’s latest policy meeting, he changed again when the Fed issued a statement hinting it may take a break from recent interest rate hikes.
Some readers will no doubt ask, "who cares?" The reality is that stock investors focus on interest rates because rising rates often kill a rising stock market. Higher rates hurt stocks because they raise costs and reduce or eliminate profit. They also make other investments, such as money market funds or the G fund, more attractive as the rates in these investments usually go up while stocks go down or remain in neutral.
Another factor may be the upcoming elections this fall. According to the Wall Street Journal, stocks typically dip in the months leading up to a mid-term election of a president’s second year. They typically go up the next year.
If that holds true–and that may depend on events in other countries or on nature’s unpredictable events–there would likely be a small return on stocks this year with a return to double-digit increases in 2007.