The Stock Market During Government Shutdowns

Chart of the Week: The Stock Market During Government Shutdowns

If concessions can’t be made in the near term to raise the debt limit, the stock market may have to deal with a potential government shutdown later in the year, wherein federal agencies are forced to cease all nonessential functions.

A government shutdown is nothing new and isn’t necessarily bad for the stock market. The government most recently shut down for 35 days—the longest pause in operations in history—starting in December 2018. Over those 35 days, the S&P 500 returned 10%.

Since the mid-1970s, the government has shut down 20 times. The S&P 500 was positive during half of the shutdowns. The index was flat on average during shutdowns—returning 0.04%. (Exclude the big 10% return during the 2018–2019 shutdown and the S&P fell 0.5% on average.)

Although unlikely, a U.S. government default could have far-reaching implications. But a government shutdown is less harmful to portfolios. Don’t let it deter you from your long-term financial plan.

How do stocks do during government shutdowns
Note: Chart shows S&P 500 price return during U.S. government shutdowns from 1976 through 2019. Sources: S&P Global, Adviser.


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