While historically government shutdowns have been relative non-events, a prolonged shutdown would be an event that could impact Financial Advisors.
The federal government closed its doors at midnight January 19th after President Trump and Democrats failed to reach a deal on immigration. Then, last night the government re-opened on a deal that extends to February 8th.
Of course, even a shutdown doesn’t mean everything Washington does will come to halt. Many of the government’s most critical operations are either deemed “essential” or else are funded outside the annual budget process — and these will continue unimpeded. National defense, air traffic control and Social Security/Medicare payments all fall into one of these categories so that should help clients and Financial Advisors feel a bit better.
The Government Shutdown May Impact Financial Advisors in These Specific Ways:
- The Markets
The government has shutdown for non-essential business 18 times since 1976 and the markets have never suffered a major setback because of it despite the rhetoric. The steepest decline recorded was 4.4% for the S&P in 1979 when an 11 day shutdown occurred. The average has been a drop of .6% when factoring in all 18.
- The Economy
The early days of this shutdown should have little effect on our $19 trillion economy as long as it is not protracted in the weeks to come. Even though essential government personnel are still working, this partial-stop of the government still costs the economy through the lack of revenue from fees at our National Parks and Museums. Businesses that contract with the government may also be affected, as well.
- If you have Federal Employees as Clients
No non-essential government workers are missing their paychecks yet but this could become an issue if negotiations stall in the days ahead. Our economy is exceedingly driven by consumer spending which could be curtailed if people hold back because they are concerned or want to keep their assets liquid instead of purchasing until it’s over.
- Preparing for or are in the Process of Qualifying for an SBA Loan
If you have a SBA loan already in process and the lender has already pulled your SBA loan number then the shutdown won’t shut down your loan. The advisors in the SBA loan process may be impacted if their loan was still in underwriting. SBA Prefer Lenders are continuing to work with borrowers on other aspects of the loan process and then can just pull the loan number when the shut down is over.
- Consulting with your Clients to File Taxes Early
Processing your taxes and sending out refunds is a non-essential service which will be delayed, too. If you have not filed yet you’ll simply have to manage your expectations and factor in the timing issue.
- The Value of the U.S. Dollar
Despite repeated threats during the Obama Administration, the last time the U.S. government was officially shut down was in October 2013 for 16 days and the dollar declined as it has now in the month leading up to the shutdown. Then halfway through, it bottomed out as investors moved on. If the shutdown is short lived, then there will probably not be much of an affect.
- Preparing for an Upcoming IPO
If you remember the government shutdown of 2013, Twitter’s IPO was briefly delayed. If you are in a fortunate enough position to be close to an IPO you’ll have to put your plans on hold.
Although the current government shutdown is frustrating and distracting, it will take an event much larger to impact our current 9-year bull market. Since the prior bear market ended in March 2009, this advance in equities is now the second-oldest on record without at least a 20 percent drop in the S&P 500.
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