Continuing Decline in TSP Funds Reflect Market Volatility
Earlier in May, it looked as though the S&P 500 stock index (the index on which the C Fund is based) was likely to enter a “bear market”, defined as a drop of 20% or more from a recent high. While stocks did drop into a bear market for a short time, there was a market rally later in the month and all returns reflected a drop of less than 20% from the recent high point in stock prices.
The S&P 500 index ended the month down about 14% from its high water mark in January. With the late rally in May, the index finished May at about where it started the month.
While there has been a late-month rally in stocks, the underlying problems still exist. The average gas price at the pump reached $4.671 per gallon on June 1st, according to the latest data from the American Automobile Association. The cost of a gallon of gasoline in January 2021, the month when Joe Biden became president, was $2.25.
The recent average cost of a gallon of gas was $4.178 a gallon a month ago and it was $3.045 one year ago.
Perhaps President Biden was reassuring the American public about the high cost of gas or perhaps he was explaining why high gas prices are good for the country when he said:
[When] it comes to the gas prices, we’re going through an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger and the world will be stronger and less reliant on fossil fuels when this is over.
In any event, high gas prices are still in full inflation mode and readers are unlikely to see the continuing increase in cost of filling up a tank as good news. The inflation is gas is a result of administration policies concerning fossil fuels, the war in Ukraine, the embargo on Russian oil by the European Union, and overall rising demand and dwindling supply. For everyone who needs to keep driving, which is certainly most of us, the rise in gas prices is a significant economic hit.
TSP Performance for May 2022 and Year-to-Date
Because the TSP was transitioning its recordkeeper, participants were unable to make trades on May 27 and 31. Their funds remain invested but the returns below only reflect the market returns through May 26.
This does not affect participant accounts – it is a reporting issue that will be resolved by the TSP when the June returns are shared.
The index for the C Fund, the S&P 500 Index, had a gain of 0.18% for the month of May. The data in the charts below show a C Fund loss of 1.65%. In the stock market rally near the end of May, all three major U.S. indexes jumped at least 6%. Because of this rally in the latter days of the month, the full-month data, if available, would reflect a smaller loss or even a slight gain in the C Fund for the month.
This more limited data below shows all of the TSP stock Funds are still underwater for the year-to-date. The F Fund is also down for the year-to-date even though it is not a stock fund.
The G Fund still has positive returns for the month-do-date and the year-to-date. The I Fund also has a positive return for the month to date.
| Fund | May 2022 | Year-to-Date |
|---|---|---|
| G Fund | 0.21% | 0.86% |
| F Fund | 1.13% | -8.30% |
| C Fund | -1.65% | -14.35% |
| S Fund | -3.53% | -21.69% |
| I Fund | 1.19% | -11.69% |
| Fund | May 2022 | Year-to-Date |
| L Income | 0.04% | -3.29% |
| L 2025 | -0.15% | -6.18% |
| L 2030 | -0.35% | -8.90% |
| L 2035 | -0.41% | -9.86% |
| L 2040 | -0.48% | -10.77% |
| L 2045 | -0.54% | -11.59% |
| L 2050 | -0.61% | -12.33% |
| L 2055 | -0.89% | -14.33% |
| L 2060 | -0.89% | -14.33% |
| L 2065 | -0.89% | -14.34% |
While there is no very good news that will have an immediate impact to quickly take stocks back to their former high mark, some analysts were encouraged by a possible restraint in raising interest rates by the Federal Reserve.
A slowing economy and the possibility that inflation rates have peaked leads to the possibility that fewer interest rate increases will be needed. In the scheme of things, this really means there is not any more bad news impacting the market at the moment.
Stocks are likely to remain volatile in the near future until there is more substantive change in the 40-year high in the rate of inflation, some resolution to the war in Ukraine, and some additions to the demand for oil and the available supply.
TSP stock fund investors should be prepared for continued volatility in stock prices. Investor confidence will likely bounce back—and will be reflected in stock prices—when there is a substantial improvement on these issues or even a significant change in one of the underlying issues.
The recent rally in stocks, which ended a seven-week losing streak in stock prices brought some relief to the stock market. On the other hand, what is known as a bear-market rally is common. A bear market rally refers to a sharp, short-term rebound in share prices amid a longer-term bear market decline.
Investors cannot be certain for now if the recent increase in stock prices was due to a longer-term market climb or a short-term feint and that stock prices will continue to drop.
We wish all TSP investors the best of luck in making their investment decisions during this period of volatile stock price swings!
