Unemployment just hit a four-year low and the stock market is setting new highs, but what of the impact of sequestration, if any—short and long term? Here are concluding excerpts from an excellent March 1 article by Kenneth Corbin for Financial Planning that addresses the subject from the perspective of financial advisors and their clients:
“The layoffs and furloughs of government employees and contractor personnel would begin gradually, and could be halted if Congress takes action to reverse the cuts. Furloughed workers, of course, would see their take-home pay drop.
“That means that the real and immediate impact of the sequester could affect planners with clients who work for the government or with a federal contractor, according to Duane Thompson, a senior policy analyst with the advisor consultancy fi360.
“‘If you’re a financial planner and you have clients who are employed by federal government’, Thompson said, ‘then this becomes more of a heightened issue’.
“But apart from those financial planning considerations related to clients’ employment picture, nothing about the sequester alone should materially alter the investment strategies that advisors recommend.
” ‘Financial planners are conservative when they look at investing, so they’re not necessarily going to jump off the deep end and start market-timing with their clients when they’ve been preaching discipline’, Thompson said.
“The failure to avert the indiscriminate cuts in the sequester, which most politicians agree is not a wise policy, does offer another example of the inability of lawmakers and the White House to broker a compromise. The Investment Adviser Association’s Neil Simon expressed confidence that the March 27 deadline would be the forcing event that compels a resolution, that a government shutdown would be so politically damaging that Obama and congressional Republicans would come together and hammer out a deal.
“The stakes in that fight will be considerably higher, he warned.
“‘Certainly one thing markets and advisors hate is uncertainty and the apparent dysfunction, if that’s the word, afflicting the government right now does introduce uncertainty’, Simon said.
“‘I don’t expect there’s going to be a real-world impact within a month’, he added. ‘If it goes past that, then it will be disruptive to the markets and then I think there will be increasing anxiety about the ability of the federal government to manage itself, and at that point I do think it will impact advisors’ judgment and their clients’ senses of well-being’.”