GOVERNMENT SHUTDOWNS AND THE STOCK MARKET

We are about one week away from a potential US government shutdown.  At this point, the House is not in session, and the Senate shows no signs of coming up with a solution.

Most of the time after the political drama, the legislative bodies reach a short-term “non-solution” that extends government funding for three to six months. They essentially just kick the can down the road.

But what if it happens this time?  How will it affect your investments?  How might it affect the stock market?

The good news is that government shutdowns have not been bad for the stock market.

In the last 50 years, there have been 22 government shutdowns and those shutdowns are typically very brief.  After political points have been made and both parties fight to dominate the headlines, the shutdowns end in an average of 8 days.  The most common shutdowns last just 2 days.

I am not minimizing the pain and the chaos of government shutdowns as millions of people are impacted.  Government shutdowns are scary for government workers and many others who depend on government resources.  Our political leaders should never let the government go out of business even temporarily. This post is only about the potential impact on the stock market.

The stock market actually gains an average of 0.3% during government closures. 55% of the time, stock prices go up and 45% of the time stock prices go down slightly.  Even in longer government suspensions, stocks have usually performed well.  The last shutdown happened during Trump’s first term, and it lasted for 34 days.  The stock market gained 10% during that government closure.

Every situation is a little different, however.  There has never been a government shutdown when stocks were overvalued by more than 20%. September is usually a tough month for the stock market but prices are up 3% in the current month.  With tariff uncertainty and inflation worries and unemployment concerns, no one wants to mess with the current success.

Another comforting statistic is that 12 months after government closures, the stock market has posted gains almost 90% of the time.  The average price level one year after the halt is a gain of almost 13%.

There are no guarantees in the stock market particularly in the short term, but history tells us that there is no need for panic as we watch the headlines over the next week.

Stay Disciplined My Friends,

Phil

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