Market Breakdown for the week.
Hope you are all doing well. The S&P 500 and the NASDAQ posted weekly declines of around 3% to 4%, retreating for the third week in a row. The setbacks were driven by steep declines on Wednesday afternoon and on Thursday in the wake of the latest U.S. Federal Reserve meeting. With Ophelia making a mess along the east coast, I have chosen to break down this week’s update using quotes from Ophelia in Hamlet.
‘Tis in my memory lock’d, And you yourself shall keep the key of it.
The market needs to lock the Fed’s message in its memory. The messaging from the Fed was largely the same as they have been delivering every meeting for the last two years. The market seems to be shocked every time. The Fed kept its benchmark interest rate unchanged but signaled that it’s likely to keep that elevated rate further into 2024 than it had previously forecast.
Projections released at the end of the Fed’s meeting showed that 12 of 19 officials favor raising rates one more time this year. This is not a surprise to me, I have assumed the Fed is going to raise one more time. I think we will get one more hike but then I think they will be done raising rates. Here’s why I think they will stop after the next increase. Inflation is increasing but core inflation continues to gradually move lower. The labor market is in the early stage of cooling. Credit card debt is rising and saving is dropping. Consumer spending has kept the economy moving. During the pandemic many were able to save.
They have been drawing down their excess savings as life returns to normal. Prices at the pump matter, consumers are less confident spending when oil prices are high, and winter is coming. The Fed is willing to see the economy slow to keep price stability and I agree that is the right course of action. That being said, they would still prefer to keep the economy out of recession which is why I don’t think they will go beyond one more hike.
Do not, as some ungracious pastors do, Show me the steep and thorny way to heaven; Whiles, like a puffed and reckless libertine, Himself the primrose path of dalliance treads.
Once again lawmakers are on the brink of shutting down the government. Many of you may be impacted by a potential government shutdown. Our ungracious pastors in Congress will however still get paid.
Thanks to Article 1 Section 6 of the Constitution they get paid whether or not other parts of the government are funded. Federal employees in critical positions would be required to stay on the job if funding lapses. Many others would be forced to stay home. Both groups would have their paychecks delayed until Congress approves more spending. Most federal contractors might not get paid at all. The good news, thanks to a 2019 law, Federal employees are guaranteed to receive back pay for the time that they are furloughed. The Government Employee Fair Treatment Act of 2019 (S. 24) requires federal employees who are furloughed or required to work during a lapse in appropriations resulting from a government shutdown to be compensated for the period of the lapse. Federal employees must be compensated on the earliest date possible after the shutdown ends.
Furthermore, the law also states that excepted federal employees who are required to work during a shutdown shall be entitled to use leave. They will be paid for said leave at the earliest date possible after the lapse in appropriations ends, regardless of scheduled pay dates. I think if a shutdown occurs it won’t be very long but it can be disruptive and can impact your short-term savings if you are furloughed.
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