Following a three-day stalemate, Congress voted to reopen the government this Monday. The Senate ultimately agreed to pass a spending bill that funds the federal government for three weeks, and supports the Children’s Health Insurance Program for six years. The Senate is also expected to negotiate an immigration deal and vote on a bill within the three weeks of open government.
While this brief reopening shows that the government is making progress, there may still be a potential threat to financial market safety as budget caps are finalized. In addition to an immigration deal, Congress must decide on a permanent 2018 spending deal. Stocks can be a good option for investors during volatile times like these. Since government shutdowns tend to be short-lived, stocks are likely to experience little negative impact.
See the chart in this article for a view of stock market trends during past government shutdowns.
For the first time since the fall of 2013, the government shutdown this Saturday. After the Senate’s attempt to pass a short-term spending bill failed, the American government became frozen, just in time for President Trump’s one-year anniversary of being in office. If the government isn’t reopened by Congress soon, investors can potentially lose part of their trades and funds protection.
Typically, a shutdown occurs in the fall when Wall Street’s top regulator, the Securities and Exchange Commission, still has money from the previous year. Since this unexpected freeze has occurred in the winter, the agency will only be able to remain open for a limited number of days. This has the chance of cutting into the funds that provide a critical safety net for the financial market. The outlines of a potential deal are currently being worked out within the Senate, but the American public can only wait to see the effects of this decision, or lack thereof.
Additional Shutdown Impacts
Following the implementation of a new tax bill, American employees will likely benefit from a paycheck boost in February. This week, the U.S. Treasury released its income tax withholding tables which reflected changes caused by the Tax Cuts and Jobs Act. Overall, the new legislation increased the standard deduction, removed personal exemptions, and reduced individual income tax rates.
As you prepare for tax season this spring, you should review your W-4 to ensure that you’re deducting the right amount of taxes under this new legislation. If too little is withheld, you’ll owe taxes. The goal is to reside in the middle of those receiving big refunds, and those with big balances due. Read this article for additional information on tax changes and how to navigate the new landscape.
Have you ever asked yourself: ‘what is the difference between speculating and investing?’ Well there really isn’t a clear-cut answer. The primary difference is the amount of risk in the trade. Speculation involves a great deal of risk, risk being defined as potential loss of principal. Typically, when you're speculating, you’re putting at risk all of your principal. When you’re investing, the likelihood of you loosing your principle is diminished. This Forbes article digs more into the weeds.
Lots of clients and new clients have been asking me the question lately, 'should I invest now?' I often quickly remark, 'unfortunately I did not bring my crystal ball into work with me today.' The reality is that timing the market is a very difficult, if not impossible task. When putting large chunks of one's wealth into the market, it most often makes sense to dollar-cost average portions until fully invested. While the market continues to reach new highs, we don't know when it will shift, but it's likely to in the near future. So, taking a measured approach that's in alignment with your risk-tolerance is always ideal.