TSP Planning Report: April 2025

Economic News

We are all noticing the stock market sink.  Clearly investors are not happy where the economy is heading. 

Here are the facts:

• Real GDP Growth: GDP growth slowed slightly to an estimated 2.4% in 2025, reflecting inflationary pressures, tariff impacts, and broader policy uncertainty.
• Unemployment Rate: The unemployment rate rose slightly to 4.2% in March 2025 despite adding 228,000 nonfarm jobs, mainly due to significant federal layoffs. 
• Federal Layoffs: Over 216,000 federal jobs were cut in March alone, accounting for nearly 80% of all layoffs reported across the U.S.
• Inflation Rate: Inflation moderated slightly to 2.8% year-over-year in February 2025, down from 3.0% in January. Consumer Price Index (CPI): CPI rose by 0.2% month-over-month in February, indicating continued moderate inflation.
• Purchasing Managers Index (PMI): PMI reading came in at 50.2, which is just barely expansionary.  (Any reading above 50 shows expansion.)  Compare this with February’s PMI reading of 52.7.
• The S&P 500: The S&P 500 (C fund) is down 15.3% YTD, dropping 11% in just one month!

This is a mix of bad and good data.  Nothing to justify the drop in the market.  So what’s going on?

In my previous report, I highlighted 6 Trump policies to watch:

1. Lower Taxes
2. Energy Independence
3. Deregulation
4. Cutting Government Spending (DOGE)
5. Selling Federal Land for Housing
6. Tariffs: Protecting Domestic Industries

Of the above, it seems like everyone’s noticing just one of them.  Understandably. 

If you’ve been paying attention to the market, you may have noticed the market movement has been responding to Trump’s tariff policies, in real time.  When he threatens tariffs, the market drops immediately.  When he removes tariffs or claims to have a trade deal, the market rises immediately.  

These movements are a combination of investor’s lack of clarity in future economic policy, and also anticipatory, meaning, if the tariffs will materialize, the expectation is decreased profits for companies, and also less money for investors to invest, driving the market down.

I do not know what Trump’s end-game is with this tariff war.  Here are three possible motivations for the tariffs:

1. Secure industries that are critical for the USA to operate, primarily for self-defense.  This includes anything related to military and agriculture.  
2. Leverage to negotiate better trade deals
3. A method of increasing revenues to USA

Of the above, #3 is the most concerning.  

#1 is essential to the USA. USA cannot and should not be dependent on another country for it’s survival.  These tariffs may make those specific industries more expensive to USA citizens, but this is limited to only those industries, and can be viewed as an insurance premium for self-preservation.  (Theoretically, if the USA over-produces in those areas, prices can be controlled, and export income may increase in those areas.)  This should not be a long-term disruptor to the overall economy.  If Trump had made this clear, the market would not have dropped 15%.

#2 is forcing countries to have fair trade deals with the USA.  This should be a win for USA businesses. If Trump had made this clear, the market would not have dropped 15%. To the contrary – this should cause the market to go up. 

However, #3 is possible, although, not-so-likely win for the USA, but will come with long-term pain.  This is what the markets are concerned about.  Aside from the economic pain, it may alienate the USA from the world which can be dangerous because it may cause other alliances to form, and could force the US Dollar to be removed as the world’s choice currency, and replaced with something else.  That would be devastating.  

I don’t know which way this Trade War will end, and I can’t foresee the full ramifications of #3 above, but, keep in mind the following:

• Businesses have a vested interest in making profits.  This is a key underlying drive in stock investing.  So long as there are companies, they will seek profits, and their stock values will grow.
• A bunch of the US companies represented in the C fund and S fund have a global presence, and it could be they could weather the storm. However, the other companies that don’t have as much of a global presence may get crushed. 
• Trade policies come and go.  I don’t see the end of America on the horizon.  Maybe a costly mistake, like mistakes we’ve been making for centuries now, and usually recover. 
• Also, signs have been showing that Trump is backing off his tough stance, and the market has already recovered about 5% of it’s loss since when I first started typing this report a week ago!  

For investors that have more than 5 years before needing investment income, I would encourage just giving the market time to recover.  It may go down further, but also may recover sooner than you think.  

If you have less than 5 years, or if you feel you may be RIFed, here are a few things to consider: 

1. Carve Out Time in your Portfolio: Whether you need time to find a new job, or time to ride out the tariff war, time is an amazing risk mitigator.  Within the TSP, you can use the G fund as your conservative money to buy time, but if you are younger than 59.5, you may need to access money outside of your TSP.  See this article about accessing your TSP before 59.5. 
   
2. If you don’t have TIME in your portfolio yet, you may need to steer TSP Contributions into your TIME bucket: For example, if you need 1-yr of transition time to find a new job, make sure you save up a year of expenses in your conservative bucket.  If RIFed, you may get severance, which may buy you a few months, but anything beyond that needs to be set aside.
   
3. Portfolio Reviews: Review your plans, continuously monitor macro-policy developments, like tariffs and interest rates. And, if your personal goals and timelines change, this needs to be factored into your plan.  Make adjustments as needed.

If you have any questions, feel free to contact me.

Email me here – stephen@stephenzelcer.com