Hope you are all doing well. This was a bad week. The S&P 500 had been on course for a modest weekly gain until midday Friday. Then out of nowhere the President decided to ratchet up the rhetoric. Escalating trade tensions between the United States and China. This sent the index down 2.7% for the day. On this day in 1971, John Lennon’s famous song Imagine was released. I have broken down this week’s update using the lyrics.
“No need for greed.” – John Lennon
Free trade is good in theory. The problem is greed. Free trade develops into unfair trade when one side becomes greedy. This causes the other side of the trade to retaliate with its own greedy measures. That is what we saw play out on Friday. President Trump announced that he was considering a further tariff increase on Chinese imports. The president cited new restrictions that China imposed on its export of rare earth minerals. This sent a wave of fear through markets on Friday. The stock market rally over the past six months has been impressively consistent. Until Friday’s drop, we had not seen a 1% daily decline in S&P 500 in nearly 50 days. Over the past 25 years we have only seen 12 longer streaks. Should you buy this dip, yes cautiously. The President has a history of making comments and then walking them back after markets dip. If you have some money on the sidelines you could take a small piece of it and move into stocks because we are about to enter earnings season and November and December are historically the two best months of the year for stocks. I say invest only a small piece because while the President may walk back his comments, however, he could just easily double down and make even more threats which would cause a much steeper drop.
“You may say I’m a dreamer.” – John Lennon
I guess I am a dreamer. I really believed that Congress would get a deal done and this shutdown would be over in a matter of a couple days. It is now lasting much longer than I thought it would. On Friday, more than 4,000 federal employees received layoff notices as part of the Trump administration’s broad effort to reshape the government while it remains shutdown. There have already been several cases brought to challenge the legality. The filings provide greater insight into an announcement from President Trump’s budget chief, Office of Management and Budget (OMB) Director Russell Vought. Vought on Friday posted on X that “The RIFs have begun,” without elaborating.
Court documents show RIF notices went out to employees at the departments of Commerce, Education, Energy, Health and Human Services, Housing and Urban Development, Homeland Security and Treasury. Treasury and HHS saw the highest number of reductions, with more than 1,000 workers laid off at each department. Additionally, the OMB a week ago quietly revised their shutdown guidance. Removing references to a law passed in 2019 to guarantee that all federal workers are provided back pay at the conclusion of a lapse in appropriations. Prior to the Oct. 3 revision, OMB’s had posted in their FAQs that during a lapse in appropriations the Government Employees Fair Treatment Act (the law enacted in 2019 as part of the deal to end the 35-day partial government shutdown) ensures both furloughed and excepted federal workers receive back pay once government funding had been restored.
White House officials said it would take a novel interpretation of the back pay law and argue it applied only to the 2019 shutdown. This change in the language is anxiety producing for many of you. If they don’t pay the back pay it will likely be challenged in court. I don’t believe the administration’s interpretation that the law only applies to the 2019 shutdown will hold up in court. I like many of you remember when that law was passed. The purpose of the law was to relieve anxiety should a shutdown happen in the future, it was not the intent of Congress to only have it apply to the 2019 shutdown.
As this is a time of anxiety for many of you, I have opened up additional hours this week on my calendar. Please use my calendar link below and schedule a phone or zoom appointment. The calendar link allows you to schedule a call as early as the next day. If it has been a while since your last review, please schedule. Please also note that because this is a busy time, calls and emails may take longer to respond to. The calendar link has a 15 minute appointment option. If it is something you need done promptly it is best to schedule a 15 minute appointment.
