TSP Performance in February
After dismal Thrift Savings Plan (TSP) performance in 2022, 2023 started the year off with a bang. TSP performance in January 2023 flipped from what it was in January 2022. All TSP Funds showed a positive return to start off the year.
Looking at the February 2023 returns seems familiar and feels like a return to the inflation-influenced days of 2022.
With the exception of the G Fund, all of the TSP Funds had a negative return in February. Over the past 12 months, all of the TSP Funds, with the exception of the G and L Income Funds, have a negative return. The exceptions are the G Fund with a 12-month return of 3.33%, and the L Income Fund with a 12-month return of 0.74%.
On a positive note, for the year-to-date, all of the TSP Funds still have a positive return.
For the year, the S Fund leads all other funds with a return of 9.01%. The I Fund is in second place with a return of 5.36% and the C Fund shows a return of 3.68%.
TSP Performance for February, Year-to-Date and Past 12 Months
Is Inflation Still a Problem?
Sometimes, the real news is not reflected in headlines. It may be wishful thinking on the part of the headline writer. It may be an inherent bias is reflected in the headlines. And, of course, politics may play a role in the headlines we see.
Inflation is a political football. Politicians do not want to be blamed for inflation. With headlines like “Inflation Highest in 40 Years”, it does not take a political strategist to see that bad news like this could influence an election.
The reality is that inflation is still a problem. It is still impacting performance of the stock market. In January, inflation increased 0.5%. That is higher than what economists had anticipated. In fact, the rate of inflation reverted back to what it was five months earlier. Here is how inflation impacted prices of everyday items over a one-year period:
It may take a few days for people to figure out the headlines are not necessarily accurate. Over the past two years, we have read inflation is transitory, declining, improving, cooling, easing, abating, and actually slowing down. “And yet we turn around and observe actually that everything has gone up widely in price. Who are you going to believe, the experts or your own eyes?,” writes The Epoch Times.
In other words, inflation is still with us, the Federal Reserve is likely to continue its policy on rate increases, and this may have an impact on stock prices.
State Street Global Advisors: View of the Market
State Street is an investment management firm that works with the Federal Retirement Thrift Investment Board (FRTIB). It manages a significant percentage of the S, F, and I Funds in the TSP.
At the monthly meeting of the FRTIB in February, State Street provided a summary of its economic outlook. That perspective will be of interest to TSP investors, especially as the company manages billions of dollars on behalf of the TSP.
As one would expect, no recommendations are made for specific TSP Funds in coming months. The presentation focused more on the global economy and growth rates. It is worth noting the observations of these experts as their knowledge and analysis may be significant on how stocks perform in coming months.
Growth Recession Forecast
State Street sees the United States and Europe to be in a “Growth Recession” with more downside risks. Lori Heinel, Global Chief Investment Officer for State Street, provided an impressive overview of the outlook for stocks. She noted a “disinflationary episode is now unfolding” and that the “mad dash” to rebuild inventories in companies is now over.
Their forecast for growth is that the United States will have a growth rate of 0.4% in 2023 and that the world growth in gross domestic product (GDP) will be 2.3%. The strongest growth rate is projected to be for China (5%) which is emerging from a massive lockdown due to Covid.
A growth recession describes an economy that is growing at such a slow pace that more jobs are being lost than are being added.
In other words, stocks for companies outside of the United States may do better than American companies.
As TSP investors who pay attention are aware, stocks have already fallen dramatically. The outlook portrayed by State Street is in favor of value stocks (rather than growth) outside of the United States.
In short, while the TSP’s I Fund (international companies) is one of the smallest TSP Funds, there are years in which this Fund does better than those funds focusing on American companies. In 2017, for example, the I Fund had a return of 25.42%—doing better than any of the other TSP stock funds.
We will find out in January 2024 if 2023 was one of those years in which the relatively small I Fund does better than the others in the TSP portfolio.