Four dates — Feb. 7, March 31, April 15 and Nov. 4 — should be on advisors’ radar as they are likely “pivot points” for events that could affect the markets, particular industries, and tax and financial planning, says Washington Update analyst Andy Friedman.
In his most recent white paper, Friedman lays out the importance of each of those four dates.
While Feb. 7 is the day when the federal government reaches its borrowing limit, March 31 is the deadline for those who don’t currently have health insurance through their employer or under Medicare or Medicaid to decide whether to purchase coverage or instead to incur the penalty meted out by Obamacare.
Then there’s tax day: April 15, which will be a bit more stressful this year for high-net-worth folks who will feel the effects of the higher tax rates on investment income. Nov. 4 brings midterm elections, when Americans will vote on all 435 members of the House of Representatives and more than a third of the 100 senators.
Also on lawmakers’ minds this year is cybersecurity, which political strategist Greg Valliere says is the “new hot issue” in Washington. Hearings on cybersecurity are planned in both chambers this year.
While Treasury Secretary Jacob Lew recently warned Congress that the government would most likely exhaust its ability to borrow in late February, Friedman notes in his commentary that although the compromise reached in September allows the government to spend money through September 2015, the government is authorized to borrow to meet those expenses only through Feb. 7.
After Feb. 7, the government will be required to sustain itself without borrowing, which it will do for a few months using tax receipts and other funds, Friedman explains, but “at some point this spring the need to borrow will become acute. At that point Congress will have to act to raise the nation’s borrowing limit. If Congress fails to do so, then the United States, unable to borrow to pay interest, will default on the national debt.”
Friedman notes the two dates, August 2011 and October 2013, when negotiations to raise the debt limit came down to the wire before Congress reached agreement to avoid a default. “The same phenomenon could occur this spring. The partisan rhetoric already has begun.”
While negotiations toward an agreement “can be harrowing, and the apparent lack of progress in the weeks leading up to the default date can rattle the markets,” Friedman notes that he correctly predicted prior to the debt ceiling negotiations in August 2011 and October 2013 that “the markets, concerned about congressional inaction, would suffer a temporary downturn as the deadline approached.”