Washington DC, July 2019 - Chair of the Federal Reserve Jerome Powell delivers his semiannual monetary policy report to the U.S. Senate Committee on Banking, Housing, and Urban Affairs on Capitol Hill. The market is pricing in a 100% chance of a cut later this month. Image: Shutterstock
Lyn Alden
The S&P 500, which represents the largest five hundred publicly-traded companies in the United States and is the index that the C Fund follows, reached the 3,000 milestone for the first time last week.
Chart Source: Google Finance
As of this month, we’re now in the longest economic expansion in United States history, as well as one of the biggest bull markets ever. On March 6, 2009, the S&P 500 reached a low point of 666 during the global financial crisis and has since increased to about four-and-a-half (4.5x) its value from that day.
At over 3,000, the S&P 500 is nearly twice as high as the previous two peaks the S&P 500 reached in 2000 and 2007, which were both over 1,500. With dividends reinvested along the way, the result today is more than double from those peaks.
The C Fund does reinvest dividends, so it captured the full power of these long-term gains. The C Fund was $7.9471 on March 6, 2009 and is now up to $43.6930, or a 5.5x increase from that bottom point.
Even folks who unluckily bought the C Fund exactly at the previous market top in October 2007 at $17.57 and held it through the giant 2008/2009 crash and through this big bull market, have increased their money by nearly 2.5x in less than 12 years.
Looking back further, investors could have bought the S&P 500 for under 100 in the 1970’s and enjoyed massive price appreciation as well as dividends along the way. The first index fund was created by John Bogle, founder of Vanguard, in the mid-1970’s. Before then, investors had to rely on stock-picking or more expensive mutual fund companies to manage their equities.
Chart Source: Mulpl.com
The other two TSP equity funds, the S Fund and I Fund, are still off their all-time highs, even with dividend reinvested. The S Fund is currently at $53.3841 compared to its August 2018 high point of $54.6885. The I Fund is currently at $30.5562 compared to its all-time high of $32.8666 in January 2018.
Interest Rate News: Powell Testimony
Jerome Powell, the chairman of the Federal Reserve, spoke in Congress last week, and discussed how the overall economic outlook is softening. Due to a variety of comments he made, the bond market has further increased its conviction that the Fed will cut short-term interest rates during the next meeting in late July. The market is pricing in a 100% chance of a cut.
Because equity valuations are inherently compared to risk-free rates of return, a lower interest rate can push stocks higher, at last until the economic softening begins impacting earnings more heavily. Earnings season for the second quarter of 2019 is beginning now and will carry through the coming weeks, which could boost markets higher or drop them lower if the reports surprise to the upside or downside compared to consensus estimates.
It’s a good idea for most investors to remain diversified into multiple TSP funds and rebalance annually, or to use a Lifecycle fund which does this automatically.
Lyn Alden is a financial writer and an engineer, and holds a bachelor’s in engineering and a master’s in engineering management, with a focus on financial modeling and resource management. She specializes in analyzing and presenting financial data. Her investment work can be found on LynAlden.com.
