“April was basically a very good month for everything,” he said recently, “except for the International fund (I-fund), which declined in April. Everything was up solidly, the S&P 500 was up 1.6 percent, the S fund was up 4.8 percent, which is a lot in one month. The I fund was down 2.3 percent, the G fund was up its normal .28 percent, the F fund had a big month, up 1 percent.”
Stein’s analysis suggests that the yearly average paints an even rosier picture for TSP participants.
“Through the end of April, year-to-date, the C fund is up 7 percent, the S fund is up 15 percent, and the I fund is down for the year. down 1.5 percent. ”
Stein explains that the I fund is the International stock fund, and that this section of the TSP is affected not only by the performance of investments in overseas stock markets, but also by the U.S. dollar. As a consequence, he says, “When the dollar strengthens, the value of international stocks relative to the dollar goes down.”
He goes on to say that current events in the markets were foreshadowed by indicators that have been making themselves apparent for some time now.
“It’s important to point out, if you look at what’s been happening in May, what we’ve seen are very sharp declines in both international and domestic stock markets. It brings into focus something people don’t think about, that the world has become so intertwined, and there’s such a strong correlation between stock markets all over the world, that investors have to start worrying about what’s happening in a country like Greece. And Greece is doing extremely poorly financially, they may go bankrupt, and that’s caused stock declines all over the world, its caused very sharp declines in the U.S.”
Looking at the L funds, Stein says, “The L funds were all positive last month. How positive they were all depends on what fund you’re looking at, and they sort of performed as well as you might expect. The L 2040 fund, which has the highest percentage in equities, which means the C , S and I funds in the TSP, had the highest rate of return, and the L 2030 came in second, L 2020 came in third, and the L income fund, which is the most conservative, having 80 percent in the F and G funds, had the lowest rate of return. ”
Elsewhere, Stein says the slowly improving domestic economy in the U.S. has been a boost for the stock market, adding, “earnings are up, and earnings have been higher than expected. And earnings are really long term what many people think drives the stock market. As earnings go up, stocks go up eventually.” Factors to watch will be improvement, if any, in unemployment, and consumer spending.
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