How Will Obamacare Affect the Stock Market in 2014?

Up until this point it’s been virtually impossible to predict how Obamacare will affect the stock market going forward. But as the plan has now been in place for at least two months, we’re starting to see results. How will Obama’s healthcare law affect your investments in the coming year?

So far, it’s very easy to see the potential for Obamacare to have a negative effect on stocks. But there is also a possibility –- with a little patience –- it could end up being good for stocks.

Let’s take a look at both possibilities.

The Potential Negatives of Obamacare

Obamacare has ushered in a host of very scary looking potential outcomes, which could cause a strong negative reaction in stocks in the coming year.

Lack of certainty/confidence. The nonworking website, HealthCare.gov, which was supposed to spearhead the shift from private health insurance plans over to the government-sponsored health insurance exchanges, is causing confusion. Even worse, we still don’t know how this will play out once the website is up and running. A lack of certainty is bad for any economy, but especially bad for the stock market. If these “glitches” are not resolved quickly and efficiently, confidence could drop –- and take the stock market with it.

Weaker employment. The early signs are in and they’re clear; Obamacare is a negative for employment. Employers have begun reclassifying employees from full-time to part-time status, so they don’t have to deal with the program’s costly employer mandates. Weaker employment will translate into declining sales, declining profits and lower stock prices.

Higher deficits. Because the government’s usual method of dealing with all crises big and small is to borrow more money, we can expect higher deficits as they begin to throw more money at the so far dysfunctional health insurance reform plan. Higher government borrowing crowds out private borrowing, and that’s a negative for both businesses and stocks.

Even more people without health insurance coverage. It’s ironic, but entirely possible, the entire stated purpose of Obamacare –- to provide affordable healthcare for everyone –- could completely backfire. As employers reduce worker status from full-time to part-time, and others cancel health insurance plans in favor of employee health insurance subsidies, consumers may opt to go without insurance altogether.

Increasing the likelihood even more is the fact that, so far, policies available on health insurance exchanges have proven to be more expensive than their private market counterparts.

Millions more people — burdened by uncovered medical expenses — will reduce the pool of consumers to buy goods and services, depressing sales, profits and stock prices.

The Potential Positives of Obamacare

Is it possible, despite all of the obvious flaws in the plan to date, the stock market may continue rising in 2014? It’s not a preposterous suggestion. The markets have continued to rise since the October 1st roll out of Obamacare. They could continue this trend into the new year.

Lower interest rates. If Obamacare weakens the economy, it would almost certainly translate into a continuation of the low interest rates the stock market has favored so far. Unless interest rates go negative it’s unlikely we’ll see further declines in rates. But a continuation of the record low rates is almost a certainty.

Lack of investment alternatives. The stock market loves low interest rates because they effectively remove fixed-income investments as competition for stocks. Continued low interest rates as a result of a weaker economy will only extend this trend.

In addition, deterioration in employment will ultimately transform into a weaker housing market, as you can‘t get a mortgage with a part-time job. This will remove real estate as a competing investment as well. Stocks may ultimately prove to be the only game in town, which can support continued higher stock prices.

The system could work. Though it doesn’t seem likely right now, it is possible that Obamacare will be fine tuned and begin working the way it was intended. If it does, it could restore confidence in the system and in the government in the same way the rollout of the Social Security system improved confidence from the depths of the Great Depression. Many new systems sputter and seem to fail at the beginning, only to find traction later and produce favorable outcomes.

It’s probably still too early to tell which way Obamacare will affect stocks. What’s your opinion?

Do you think it will bring the market lower next year? Or do you foresee reasons why the market may have a positive reaction to the new healthcare plan?

Comments

  1. says

    It is refreshing to read someone writing about how the ACA might cause stock prices to rise, rather than the doomsday predictions that seem to be prevalent. If you were a betting person, do you think that stocks will actually rise? Or will they fall as most financial writers are predicting they will when the changes take place. I’m really hoping that the system works, it is going to need some serious over hauling but it is possible.

    • says

      Hi Jon – Thanks, but if you notice, most of my postivie scenarios center on how the negatives of Obamacare will have a positive affect on stocks. The drain on the economy it is likely to cause will probably keep interest rates low, fueling a lack of alternatives to stocks. But we do have to hope it works because what’s the alternative if it doesn’t?

  2. R L Thompson says

    The increase of new customers for insurance companies alone will show increased bottom lines. Everything related to the medical care market is going to show increased demand for products and services. Golly, won’t the stock market love that? Increased share holders, wow. The need for medical suppliers will grow to meet the demand of new customers (patients). That’s just common sense. Buy medical and drug suppliers stocks now while they are low because they will be increasing. An open market – where did I hear that?

    • says

      Hi R.L. – That seems to be a developing outcome. Since Obamacare is increasing healthcare’s slice of the economic pie, providers stand to benefit. So maybe the best play is to invest mainly in healthcare stocks, and ignore the big picture in the market. It’s not inconceivable.

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