Stock Funds Rebound in February: Will the Bull Market Continue?

The stock market decline in January did not carry through into February as stocks continued to go up. The F fund also went up–good news for investors in this fund which had a bad year in 2013.

Stocks rebounded in February after falling in January. All of the TSP stock funds are now up for the year with the S fund having the biggest gains in February and also for the year-to-date. For the Lifecycle funds, the L2050 (the most aggressive fund) is leading for the month and for the year.

Here are the results for all of the TSP funds.

G Fund F Fund C Fund S Fund I Fund
Month 0.18% 0.62% 4.58% 5.43% 5.58%
YTD 0.39% 2.21% 0.97% 3.42% 1.32%
12 Month 2.03% 0.55% 25.44% 32.45% 19.66%
L Income L 2020 L 2030 L 2040 L 2050
Month 1.15% 2.73% 3.44% 3.94% 4.44%
YTD 0.73% 1.12% 1.33% 1.50% 1.61%
12 Month 6.29% 13.63% 17.00% 19.49% 21.87%

The Standard & Poor’s 500 (S&P 500) index is the index on which the C fund is based. The stock market finished with the best gains so far in 2014 on March 4th as the S&P 500 closed at a record high for the 49th time in the past 12 months. With this background, and the bull market’s fifth anniversary only a few weeks away, Thrift Savings Plan investors may be taking a close look at their stock investments and wondering if the current market level is sustainable.

The S&P 500 has surged 174% since it bottomed in March 2009. Take a look at how the C fund performed in 2008. It was down for seven months of the year and down about 38% for the year. The C fund has been up every year since 2008.

This means that the stock market rally and the length of the rally is a historic bull market but not an unprecedented one. Currently, the bull market is the sixth longest bull market and the fourth best performing market since 1928. Unfortunately, the reason for the rally is not based on healthy economic growth as much as an unprecedented stimulus from the Federal Reserve.

Begin End Start Finish % Change Duration (Days)
12/4/1987 3/24/2000 223.92 1527.46 582.15 4,494
6/13/2049 8/2/1956 13.55 49.74 267.08 2,607
10/3/1974 11/28/1980 62.28 140.52 125.63 2,248
7/23/2002 10/9/2007 797.70 1565.15 96.21 1,904
8/12/1982 8/25/1987 102.42 336.77 228.81 1,839
3/9/2009 3/4/2014 676.53 1872.53 176.78 1,821

The “stimulus” means that the Federal Reserve has been putting an extra $85 billion (more recently reduced to $65 billion) per month in a program to buy bonds. This keeps interest rates very low and stocks have been a much better investment than bonds. The stimulus program has jacked up the value of stocks as many investors do not want to lose money or make a very low interest rate each year. Stocks were the most obvious option for investment.

Investors in the TSP’s F and G funds are well aware of the low interest rates while they watched the F fund lose 1.68% in 2013 and the G fund providing investors with a yearly 2013 return of 1.89%.  The C fund returned more than 32%.

Now, investors are probably asking themselves how much longer the stock market rally will continue. We know that the Federal Reserve is scaling back its bond buying binge and, with the economy starting off 2014 weaker than expected and stock valuations already sitting at fairly high price to earnings ratios, there is plenty of room for concern.

According to the Wall Street Journal, the strongest bull market ran from 1987 through 2000. At that time, the S&P 500 rallied 582%. The second biggest rally was the 267% surge running from 1949 through 1956. Rounding out the top three is the 1982-1987 bull market, when the S&P 500 jumped 228%.

From this longer term perspective, the current bull market could continue its run, with dips and corrections along the way. The S&P 500 historically averages about 10% a year. The S&P 500 has only averaged 2.5% a year since 2000 because of several years of stock market drops on the way to 2014. So, compared to historical averages, the current bull market may have room to run.

Of course, any bull market has to be based on earnings and not just new money being printed (or digitized) by the Federal Reserve to buy more bonds and adding to our national debt. Changes in company earnings and economic growth will play a role. And, as we have been rudely reminded by Russia in the past few days as it moves to take over at least part of the Ukraine, we do not have much control or, apparently, much influence over what may happen in many parts of the world. Oil price shocks, damage to crops, and various natural or man-made catastrophies can derail the stock market.

For those who do not like to pay close attention to your investments and would rather put your money into a fund that is automatically diversified, the lifecycle funds are available. For those who prefer to invest in the underlying funds, it may be time to rebalance your investments if you have not done so.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47