Good evening, TSPwire Tactical Investor!

Wall Street’s optimism confronted reality during the week. Reality won.

American International Group (AIG) dropped 8.8%. The insurer late Thursday posted $7.8 billion loss and unveiled the plan to raise $12.5 billion in capital. General Motors (GM) was the second-worst blue-chip after AIG falling 4.1%. FedEx also added some negative news to the mix. After the closing bell, the shipping company, an economic bellwether, warned that it will miss expectations because of rising fuel prices. Its shares fell 3%.

Stocks also were hurt by the climb in oil prices (passed $125 per barrel). Commodity prices can weigh on economic growth and stocks. Basic materials and energy sectors were the worst-performing sectors on Friday, suggesting that high prices will crimp demand. And though the worst of the credit crunch may be over, its economic effects seem to be lingering. The Commerce Department reported the trade deficit shrank in March as imports and exports fell.

Stocks were due for a break. After touching bottom on March 11, US stocks bounced back 10-11% to its highest level of the year when the week began. We believe that this week we observed a temporary adjustment and there is nothing to worry about.

Next week we will keep our allocations at the same level: 50% in I Fund and 50% in C Fund.