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How Does the Stock Market React to a Government Shutdown? Thumbnail

How Does the Stock Market React to a Government Shutdown?

The US government temporarily averted a shutdown after the House and Senate passed a 45-day funding deal on September 29. But the specter of a shutdown still looms if a longer-term funding resolution fails to materialize before the stopgap ends.  

The US government has faced 14 funding gaps since 1981, ten of which resulted in shutdowns.  During these shutdowns, many non-essential functions of the government cease. In most cases, the fiscal shortfall was resolved within a few days. Some impasses, like the December 1982 episode, lasted merely a weekend. However, four shutdowns lasted at least one week. How did stocks fare during these prolonged episodes? The US market ended higher at the conclusion of three and was flat in the other.  

So, while a shutdown may be a nuisance, history suggests it’s probably not cause for concern in your portfolio.

Funding Gaps Lasting at Least One Day Since 1981

Growth of Wealth for the Fama/French Total US Market Index During Government Shutdowns Lasting at Least Five Days Since 1981 

As I like to say, this stuff is just noise to the long-term compounding of equities and your investment plan.