TSP Weekly Wrap-Up

Hi everyone – It’s your weekly dose of TSP Talk from www.tsptalk.com.

Last week was certainly an interesting week as we started out on Monday, coming off of that large sell-off on the Friday before caused by the Dubai credit issue. The low volume sell-off left questions as to how investors would react when they came back from the long Thanksgiving weekend.

It turns out that investors used the opportunity to buy as the Dow was up about 35-points last Monday, but then rallied another 120+ points on Tuesday.

On Wednesday we saw more selling pressure after the Federal Reserve made comments regarding the possibility of raising interest rates sooner than originally expected. Also, there was a congressional proposal to tax certain stock transactions and, in a 225 to 200 vote, the U.S. House of Representatives voted to prevent the federal estate tax from expiring on Dec. 31. Very little concerns Wall Street more than higher taxes and higher interest rates.

Then came the Jobs report on Friday. The 11,000 jobs lost were much fewer than expected, and the 10.0% unemployment rate was also a surprise as the estimates were for 10.2%.

The market responded by seeing the Dow up 150-points right out of the gate, but it drifted lower the rest of day, actually moving into negative territory before finally settling the day at +22-points.

For the week, the C-fund gained 1.36%, the small and mid-caps of the S-fund picked up an impressive 3.02%, and the I-fund, not to be outdone, rallied 3.07%. With investors moving to stocks this week, the F-fund (bonds) shed 0.78%.

Can stocks hold onto these first week gains heading toward the end of the year? Well, as we talked about last week, the seasonality data says we can as historically the market performs very well during the holiday season.

One of the theories as to why stocks do well during the last few weeks of the year, particularly during years where the market has has done well, is because investors are reluctant to sell their winning positions until after the new year, so they won’t have report those gains on their tax return for that year.

If an investors sells on December 31, 2009, those gains get reported on their 2009 tax return. If they wait a day and sell on January 4, 2010, the first trading day in 2010, those gains do not have to be reported to the IRS until they do their 2010 tax return. Makes sense, and that’s why I am also a little concerned about the TSP funds for January.

Good luck, and thanks for reading! We will be back here next week with another TSP Weekly Wrap Up.

Tom Crowley
TSP Talk