Government Shutdown Fears
Rachel T. from Seattle, WA asks: Hi Mitch, I think it’s pretty much a foregone conclusion that the government will shut down this week, and based on how things are going, it’s not looking good for some deal to be made. I’m worried about what that would mean for the economy and the stock market. Should investors be bracing for a big impact?
Mitch’s Response:
By the time readers see our exchange here, it may very well be the case that Congress hits the October 1 funding deadline without a continuing resolution. That would mean parts of the federal government would shut down.
The implications can be far-reaching. As many as 900,000 federal workers could be furloughed, there would be delays in agency services, closed national parks, and postponed release of key economic data. For everyday life, I want to be clear that these delays and closures would not be trivial matters. But from an investor’s standpoint, history suggests shutdowns are more noise than fundamental risk.
Case-in-point: since 1976, there have been more than 20 shutdowns of varying lengths. None has ever caused a recession, and none has been the spark for a bear market.
In fact, stocks have risen more often than not during shutdowns, and in the majority of cases, they were higher in the months immediately after. I offer readers a visual breakdown of the three most recent shutdowns, which took place in early 2018, late 2018/2019, and October 2023. The longest shutdown on record, the 35-day episode in late 2018 into 2019, coincided with a strong equity rally as seen below.
Markets May Swing — Here’s How to Stay on Track
Government shutdowns and other Washington standoffs grab headlines but rarely trigger recessions or bear markets. The bigger danger is reacting to the noise and trying to time the market, a move that often hurts long-term returns.
Our free guide, “The Perils of Market Timing” 1 shows why staying invested through uncertainty works better than jumping in and out. You’ll learn:
- The real cost of trying to time the market
- Two simple steps that may help you stay invested and on track
- The bottom line for investors
If you have $500,000 or more to invest and want to learn how you may be able to avoid these mistakes today, click on the link below to get your free copy:
Download Zacks Guide, “The Perils of Market Timing”1
The S&P 500 and Government Shutdowns, 2018 – 2023
This isn’t to dismiss the hardship for workers and contractors who lose work as a result, but it shows markets are usually focused on longer-term fundamentals rather than temporary political standoffs.
That said, short-term sentiment can wobble. Headlines about furloughs and delayed paychecks can weigh on consumer confidence, and markets don’t like uncertainty. If a shutdown drags beyond a few weeks, the cumulative effects—lost consumption from unpaid workers, delayed contracts for businesses, disruptions in data—could start to add up. Today’s environment adds a few wrinkles as well. Stock valuations are elevated, the U.S. dollar has been under pressure, and the Fed is highly data dependent. A prolonged lapse in government reports could complicate monetary policy and add to volatility.
Still, perspective is key. Mandatory programs like Social Security and Medicare would continue operating, and three-quarters of government spending stays funded. Housing, consumer spending, business investment, and global growth, the forces that drive earnings and markets, do not necessarily hinge on whether the Smithsonian is open or a monthly jobs report comes out on time. Shutdowns are more political drama than they are economic drivers.
When news like government shutdowns or record margin debt hits, it’s tempting to act fast. But history shows that emotional trading and market timing often hurt more than they help.
Our free guide, The Perils of Market Timing³, explains the traps many investors fall into and how to stay disciplined when uncertainty strikes. Inside, you’ll learn:
- The real cost of trying to time the market
- Two simple steps that may help you stay invested and on track
- The bottom line for investors
- If you have $500,000 or more to invest, download your copy today and learn how to keep short-term noise from derailing your long-term goals.
Get Your Free Guide: The Perils of Market Timing 3
Disclosure
2 Fred Economic Data. September 29, 2025. https://fred.stlouisfed.org/series/SP500#
3 ZIM may amend or rescind the “The Perils of Market Timing” guide for any reason and at ZIM’s discretion.
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