With Congress showing no sign of consensus, the looming threat of a government shutdown is instilling fear and unease among those from Main Street to Wall Street.
Financial advisors are no exception. Here’s how advisors and industry experts are reacting to the potential fiscal standoff.
1. We anticipate that the market will react quite negatively to a government shutdown. We also see the market recovering all of its losses quickly, should a compromise be reached within the next three weeks. After the last government shutdown in 1996, the market rebounded over 10% in the month that followed. We are not doing anything right now. Should the government shutdown become protracted and threaten to precipitate a recession, we are also preparing to sell our equity positions. We do our best to preempt our clients questions, so we sent them an email last week warning them that a government shutdown was imminent and that the market would probably have a lot of downside. We told them that we do expect a compromise at some point and that we believe the market will rebound quickly after that. We told our clients that we are worried about it so that they don't have to be.
-Ken Moraif, senior advisor at Money Matters
2. The challenges are likely much greater in a shutdown. Sequester cuts the budgets. During a shutdown, nothing gets processed. The DC economy survived the tech bust fall-out with government ramp-up following 9/11; and the 2008 housing crisis left our city virtually unscathed. This year has caused greater fear for the region, with the 2013 sequester and possible government shutdown. Periodic, one-day furloughs are not changing clients’ retirement plans. But those who work for government contractors, or earn commission selling to government have seen their incomes plummet and their jobs at risk.
-Barry Glassman, president at Glassman Wealth Services
3. The advisors we’ve heard from aren’t recommending that their clients take any special actions in expectation of a government shutdown. The current political environment is one of the factors they account for when developing portfolio recommendations. Any government action could have a short-term effect, but won’t cause too much upheaval over the long term. Overall, economic activity is very positive right now and a shutdown can’t stop the forward motion.
-Geoffrey Brown, CEO of NAPFA
4. A government shutdown would be temporary and probably make only modest dents in fourth-quarter growth, whereas failure to agree on raising the debt ceiling in a few weeks could put the U.S. in technical default and be massively disruptive to the economy and global financial system. Even if the government experiences a short-term shutdown, we believe Washington can stumble toward at least a temporary solution on the more important debt ceiling. Expect more volatility in the near-term as the potential risks are arguably not yet fully discounted into stock prices. Those investors uncomfortable with volatility should consider getting a bit more defensive, possibly raising cash, while those with longer-time horizons can probably use the market angst around the U.S. budget issues as a buying opportunity.
-Russ Koesterich, chief investment strategist for BlackRock
5. If there is a government shutdown it’s likely to be short, and we don’t think it will have a lot of impact on the economy or businesses. This is not really a big focus of most individual investors or financial advisors.
-Kate Warne, chief investment strategist at Edward Jones
6. I don't have any clients that I think would be directly impacted. Should this madness actually happen and go on for a prolonged period there will certainly be implications that many of us have not considered.
-Roger Wohlner, fee-only financial adviser at Asset Strategy Consultants
7. During the last shutdown, the market actually went up. After they settled, it went down again. But it's out of our hands. If there was anything we could do about it, we would do it.
-Susan Fulton, president at FBB Capital Partners