Washington Week: Tariffs, Trump's Personnel Moves & Fiduciary Rule Ruling

Stocks drifted lower as investors pondered the impacts of tariffs, White House drama, and rising interest rates. Secretary of State Rex Tillerson was fired by President Trump on Tuesday, while Chief of Staff John Kelley told officials that there were no immediate personnel changes planned regarding himself. Meanwhile, a court of appeals ruled that the Department of Labor overreached with its fiduciary rule and struck down the law.

Weekly Returns

S&P 500: 2,752 (-1.2%)
FTSE All-World ex-US: (-0.7%)
US 10 Year Treasury Yield: 2.84% (-0.5%)
Gold: $1,313 (-0.7%)
EUR/USD: $1.229 (-0.2%)

Major Events

• Monday – President Trump blocked Broadcom’s unsolicited $117 billion bid for Qualcomm
• Monday – Dropbox set the price for its IPO with a $7-8 billion target valuation
• Monday – Apple bought Next Issue Media and its Texture magazine subscription service
• Tuesday – Gun-maker Remington announced it expects to file for bankruptcy
• Tuesday – President Trump fired Secretary of State Rex Tillerson
• Wednesday – Toys R Us said it is likely to close all of its U.S. stores
• Wednesday – Theranos founder Elizabeth Holmes was charged with fraud by the SEC and reached a settlement agreement
• Thursday – iHeartMedia, the largest operator of radio stations, filed for bankruptcy
• Friday – Chief of Staff John Kelley said his job was secure for now
• Friday – The Justice Department said it has widened its probe into Wells Fargo to include its wealth management division
• Friday – The IRS received data from Coinbase on holders who bought or sold more than $20,000 worth of cryptocurrency and is expected to pursue those who did not report gains

Our Take

It was a busy week in Washington, complete with major cabinet reshuffling, a blocked mega-merger, a broadening investigation into one of the country’s biggest banks, and a plot-line of an alleged affair between the President and a porn star that doesn’t seem to want to go away. Almost as an afterthought, the Fifth Circuit Court ruled that the Department of Labor (DOL) “overreached,” potentially striking a death blow to the Fiduciary Rule.

For newer readers, we’ve been quite vocal on the Fiduciary Rule, as well as avid supporters of it. In sum, it says that investment advisors must act in their client’s best interest when giving investment advice on saving for retirement, and sought to end some aggressive commission based sales practices. As a fiduciary ourselves, we think the rule was a step in the right direction.

Its fate now remains unknown, but it seems unlikely to remain law in any meaningful way. The DOL will likely appeal, but that may have more to do with how the ruling was worded and protecting its turf than trying to save the law itself. President Trump has never clearly stated his position on the rule, but it seems fairly clear he does not support it as written.

Regardless, the DOL’s efforts somewhat surprisingly did manage to garner significant media attention and helped shine a spotlight on some of the problems in the industry. While the law itself may be scrapped, much of its focus will remain and industry behavior has already shifted to some degree. That is a positive. The SEC will now likely pick up the ball, and hopefully they will make more progress. In the meantime, if you’re not sure if your advisor is acting as a fiduciary or if you don’t understand exactly how or how much you are paying him or her – ask!