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?
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?