What is TSP?
With most funds in the green, July has proven to be a positive month for the TSP.
By just a tiny fraction of a percent, the G Fund is up while the F Fund is down, but the good news is that the three equity funds have increased:
C Fund: up roughly 3.8%
S Fund: up nearly 1.5%
I Fund: up a reliable 2.7% despite the recent struggles in the past months
With many companies reporting results for the previous fiscal quarter, earnings season is in full swing.
The average revenue increase in comparison to last year’s quarter was a reliable 8.6%, based on the hundreds of S&P 500 (C Fund) stocks that have reported quarterly results thus far, according to CNBC. Increased earnings are 22.4% on average (7-8% of that because of corporate tax cuts passed last year).
While most companies are exceeding analyst expectations, there is an outstanding exception to the positive trend; Facebook and some other high-flying tech stocks. Facebook’s reported number of average daily users (1.47 billion), as well as their reported revenue, was beneath analyst expectations. Their guidance for the rest of 2018 also slightly missed the mark.
Facebook’s stock fell hard, dropping over 20% in just a single day (their most significant single-day stock drop in history).
As a result, about $120 billion was cut from Facebook’s market capitalization. Despite the company’s continued growth regarding users, revenue, and profits, any reduction in growth is typically met with selling and sharply reduced valuations since investors place such a high valuation on the company overall.
Facebook shares represent nearly 1.8% of the 500-company C Fund and are the fifth largest holding.
Luckily, the diversity of the fund, stable earnings, and the results of other companies absorb Facebook’s stock price drop.
Two other tech high-fliers in the C Fund, Twitter, and Netflix saw similar declines (15-20%) late in July. While both companies reported decent results, they were still not adequate to meet the satisfaction of the investors with their high valuations.
Keeping an Eye on Tariff Impacts
Due to the country’s new aluminum and steel tariffs and rising material costs, many companies requiring considerable steel and aluminum in their operations announced softer results. Harley-Davidson, Coca-Cola, Honeywell, Whirlpool, General Electric, W.W. Grainger, Stanley Black and Decker, Genuine Parts, and a handful of other companies (all C Fund components) reported that they are exposed to higher material costs. In response, a majority of them are raising prices, which passes the price increase down the ladder, straight to their customers.
Many other companies, like Harley-Davidson, don’t foresee the ability to raise prices very much and expect to see themselves consuming most of the extra costs, which could result in an overall reduction of their profit margins.
Because of the combination of declining sales and rising material costs, companies like Whirlpool seem to have taken the hardest hit.
However, Nucor and other steel producers seem to be reporting positive results. The profit margins of domestic steel producers are increasing with the help of higher steel prices due to tariffs on imported metal since their selling price is higher and their expenses remain mostly the same.