In January 2022, Thrift Savings Plan (TSP) returns were negative for every stock fund and Lifecycle Fund. The G Fund was the only exception with a positive return of 0.13%.
With that background, how are stock returns faring in the second month of the year? So far, the results are not favorable with one major stock major index at least temporarily falling into “correction” territory (a drop of more than 10% from a recent high).
TSP Returns in 2022: One Fund is Up and One Down 13.30%
As was the case at the end of January, all of the TSP Funds are showing negative results with the exception of the G Fund which has gained 0.24%. The G Fund is often thought of as the “safest” TSP Fund as it never goes down. It also does not go up very much when the stock market is booming as it has for the last few years. But, for now, when market returns are negative, the G Fund is alone in the listing with a positive return.
The S Fund has had the biggest losses this year and is down 13.30%. The C Fund is not far behind with a negative return of 9.50% so far in 2022.
As of the close of the market on February 22, 2022, here are the returns for all of the TSP Funds:
Why Is the Market Going Down?
Investors have obviously been concerned about rapidly rising inflation in recent months—and with good reason. Any COLA increase or annual pay raise lags behind recent inflation in the best of times. With inflation increasing at levels not seen in decades, the purchasing power of Americans is dropping as prices soar.
The index used to measure inflation for COLAs (CPI-W index) is now up 8.2% over the past 12 months.
But, despite economic concerns, the increasing news of war in Europe is now dominating headlines. With Russia advancing into some regions of Ukraine and surrounding that country with a large number of troops, tanks, missiles, and other military equipment, this situation and uncertainty about how it will evolve is having a significant negative impact on stock prices.
So, take your pick for the most important reason for the stock market dropping: Rapidly rising inflation, a war in Europe, or the latest news about the COVID pandemic. Taken together, it is not surprising polls showing a majority of Americans think the country is heading in the wrong direction. When public confidence is in the doldrums, it is not a surprise that recent TSP and stock market returns have been negative.
What Happens Next?
Of course, what stock returns will do in the future is speculation but often of interest when recent stock returns have been negative. In the monthly public meeting of the Federal Retirement Thrift Investment Board (FRTIB), State Street Global Advisors conducted a presentation on “Market Review and Macro Economic Outlook.”
State Street manages accounts for the TSP. It is a large company and manages over $4 trillion in assets with over 2,500 employees in 28 countries. The parent company, State Street Corporation, oversees $43.7 trillion in assets.
State Street sees 2022 as “a year of two halves” as the investment environment is likely to be changing during the year. In 2022, the economic recovery will continue but with more volatility and momentum will be slower.
Households are “asset rich” and wage and salary income are at record levels. This translates into a strong opportunity for spending which will help drive company earnings higher and that can translate into higher stock prices. During the pandemic, the demand for “goods” remained high while demand for services dropped. In other words, a business such as a restaurant saw lower demand (and they were closed in some places during the pandemic) while the demand for goods (such as toilet paper, paper towels, disinfectant wipes) was higher. Manufacturers were hard-pressed to meet demand during the pandemic, shortages of some products became common, and delivery times were down.
Most of us are familiar with the resulting supply chain problems. Inflation has now become a major factor for the economy and for stock prices. There is now an expectation for more inflation and that it will go on longer than the “transitory” inflation that was frequently mentioned a few months ago.
Growth in the United States has been larger than in Europe. That is changing and the prospect for future earnings and lower (“less-stretched”) stock valuations will make European stocks more attractive.
The United States and most of the world are now moving from a COVID pandemic to an endemic. With this change, the biggest risk for stocks will be inflation and how the Federal Reserve reacts in making policy decisions instead of COVID and its impact on government policy decisions and the economy being the biggest risk.
So, despite the initial drop in stock prices, the chances are favorable for a stock market recovery later in 2022. The bigger challenge will be in navigating a “soft landing” in 2023.
The TSP participation rates for FERS and active duty uniformed services reached a new record high of 94.9% for FERS and 81.3% for uniformed services in January.
The TSP contact centers have suffered as a result of national labor supply problems and COVID-related absences. As a result, it has been a challenge to maintain sufficient staffing at the TSP contact centers. There has been a very high attrition rate of 94.6% in staffing at the contact centers. The situation is improving with changes being made to some contracts applicable to the management at these operations and a more favorable labor supply beginning to appear.
Interfund Transfers in January
The stock market took a tumble in January and stock prices went down significantly in one month. This generated more interfund transfers in January than usual.
For the month, more than $5.9 billion was transferred into the G Fund. At the same time, more than $2.4 billion was transferred out of the C Fund, $$2.1 billion was transferred from the S Fund, $634 million was transferred from the I Fund, and $619 million was transferred from the Lifecycle Funds. $189 million was transferred from the F Fund.
While money transfers in the billions are obviously large, as of the end of January, the TSP plan balance was $780+ billion. This means that the percentage of TSP assets transferred was relatively low compared to the total assets in the program.
2022 has not been a good year for stock market investors. The risks impacting stocks are changing as the pandemic fades into the background, inflation appears to be more consistent than the initial “transitory” predictions, and a war in Europe is now dominating headlines.
The outlook for the year as a whole is more optimistic than the first two months. No doubt, all investors are hopeful more optimistic predictions for a turnaround later in the year turn out to be accurate.