May was a good month for TSP investors. In fact, so far in 2016, all of the TSP funds have positive returns with one exception: The I fund which is down 0.12% for the year.
Perhaps the largest factor impacting stock prices in May was expectations for interest-rate increases. During the month, concerns about interest rates going up changed from concerns that rate increases would hurt stocks to a more positive belief that rate increases were an indication that the lackluster economic growth may finally be improving.
The S&P 500 index fund was up 1.5% during May. Note that the TSP’s C fund, which is based on the S&P 500 index, was up 1.8% for the month. Also, the S&P 500 index is up 2.6% so far in 2016 and the C fund is up 3.60% for the year. Another widely followed stock index, the Dow Jones Industrial Average, is up 2.1% so far in 2016. Dividends that are paid by companies in the TSP funds are added into the prices for each fund.
The only fund that is down so far in 2016 is the I fund. International stocks have not fared as well as American stocks so far this year and the I fund performance reflects that lower performance. Here are the TSP results for May 2016, the year-to-date (YTD) and also the returns for the past twelve months:
|G Fund||F Fund||C Fund||S Fund||I Fund|
|L Income||L 2020||L 2030||L 2040||L 2050|
At the end of May, the S&P 500 was up for the third straight month. April was slightly positive with a gain of 0.39% for the C fund, but the March rally, with a return of 6.79% for the C fund, 8.24% for the S fund and 6.59% for the I fund, was a surprise for many investors. Will the market grind higher as the summer wears on?
Sell in May, Then Go Away?
Of course, some stock market analysts are skittish about short term returns and interest rate hikes are still behind the concerns. As one analyst noted, in predicting a 15% stock market decline over the summer months, the market isn’t “pricing in a summer rate hike, and the reason is, if you look at the stocks and the sectors in the S&P that are expensive, they’re industries that benefit from zero interest rates. The possibility of two hikes this year isn’t being priced in either.”
An article in USA Today notes that “Wall Street is eyeing markets in June with suspicion and trepidation” and “potential shocks” that could take the stock market lower in the near future. June is also the 2nd worst month of the year for stocks as measured by the Dow Jones Industrial Average.
Of course, there is always the potential for negative news and those fears often do not come to pass and those who are not invested in stocks sometimes miss an upswing in prices that was not anticipated. Consider this headline: Three reasons why the S&P 500 is primed and ready for big gains.
So, we know that the market will go up or down. Take your pick and invest accordingly.
Long term investors usually screen out the background noise of short term investment predictions and, instead, focus on having a diversified investment portfolio of stocks and bonds without losing sleep over the latest scary headlines.
Interest rate hikes may have a negative impact on overall stock prices, but the rates paid to investors by the G fund, which have been very low for a few years, would likely go up as interest rates go up.
Follow Ralph on Twitter: @RalphSmith47