When Washington Shuts Down, but Markets Don’t

Every few years, Washington reminds everyone how broken the system can feel. The government shuts down, federal workers are furloughed, and Americans are forced to watch the same tired debates play out again. It’s easy to think this chaos would shake up the stock market, but the data shows a very different story. Despite the dysfunction, markets usually shrug it off and keep moving. 

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A Look Back: Markets Through Past Shutdowns 

 

Since the mid-1970s, the United States has experienced over 20 government shutdowns, depending on the specific criteria used for counting. Some lasted only a day or two, while others went on for weeks. Looking at how markets performed during and right after those shutdowns, the trend is clear: stocks rarely panic. 

 

S&P 500 Performance During Major Shutdowns 

 

In 1979, the shutdown lasted 11 days, and the S&P 500 dropped about 4.4 percent. During a 21-day shutdown in 1995 and 1996, stocks gained roughly 0.1 percent. The 2013 shutdown, which lasted 16 days, saw the S&P 500 decline just 0.6 percent before rallying afterward. The longest shutdown in U.S. history, in 2018 and 2019, lasted 35 days, and the S&P 500 increased more than 10 percent. Since 1976, the average market return during all shutdowns has been slightly positive, around 0.3 percent. A year later, the S&P 500 has averaged roughly 12.7 percent higher. In other words, short-term fluctuations rarely impact the long-term trend. 

 

Why the Market Doesn’t Flinch 

 

It’s strange when you think about it. The government shuts down, agencies stop functioning, and yet the stock market hardly moves. But the market isn’t emotional; it’s practical. 

 

The first reason is that Wall Street prioritizes profits over politics. Corporate earnings, interest rates, inflation, and consumer demand influence prices, not who is fighting in Congress. Unless a shutdown directly affects those key factors, investors remain focused on the bigger picture. 

 

The second reason is that most shutdowns don’t eliminate government spending; they delay it. Federal workers often get back pay, contracts are resumed, and programs are restarted. The economic impact is temporary, not permanent. Third, shutdowns are almost always short-term, lasting a week, maybe two. Markets dislike uncertainty, but they dislike long-term uncertainty even more. Once investors see an end in sight, volatility drops quickly. 

 

Another reason is that the Federal Reserve often silences the noise. In many shutdowns, the Fed’s stance matters significantly more. When the Fed eases or pauses rate hikes, stocks tend to rise even as the government comes to a halt. That’s what happened in 2018 and 2019 when the Fed shifted dovish and the market took off. Lastly, not all sectors experience the same pain. Defense and government contractors might be affected, but technology, healthcare, and consumer companies usually remain unaffected. The shutdown doesn’t impact how many iPhones Apple sells or how many people stream Netflix on a weekend. 

 

The Current Shutdown: Same Movie, New Year 

 

Here in 2025, the script hasn’t changed much. On the first day of the October shutdown, the S&P 500 increased by about 0.3 percent, the Nasdaq rose 0.4 percent, and the Dow barely moved. A week in, markets remain steady. It’s frustrating for Americans who depend on government paychecks, but for investors, it’s just background noise. 

 

Even now, the SPDR S&P 500 ETF (SPY) is trading near record highs, around $673 this morning. Not bad for a country supposedly paralyzed by politics. 

 

What This Says About Public Perception

 

The gap between Main Street and Wall Street widens each time there’s a shutdown. Regular folks see dysfunction and fear collapse. Investors see dysfunction and think they’ve seen this movie before. This contrast sheds light on the significant divide in financial outlooks. 

 

People lose faith in institutions, but markets don’t depend on faith; they depend on math. Many sell out of fear, only to see markets rebound as they usually do. Shutdowns may pause bureaucracy, but capitalism doesn’t take a break. While the average person feels anger or exhaustion watching Congress argue, investors concentrate on whether the next earnings season will surprise to the upside. 

 

Where the Logic Might Break

 

This pattern isn’t foolproof. If a shutdown lasts for months or coincides with more serious problems, like a debt ceiling crisis or a credit downgrade, markets could face significant impacts. We saw a hint of that in 2011 when debt ceiling drama led to a U.S. credit rating downgrade and high volatility. But under normal circumstances, shutdowns tend to be more show than genuine threat. 

 

The Bottom Line 

 

Government shutdowns make headlines but reflect poor governance. They show how little some politicians care about those caught in the middle. However, when it comes to the market, it’s hardly a concern. Data consistently confirms this. For long-term investors, that’s a reminder: focus on what you control—your savings rate, your investment mix, and your behavior. The rest is noise, and the market repeatedly proves it can ignore that noise. 

 

Sources

• American Century Investments, “How Do Government Shutdowns Affect Markets?”

• Kiplinger, “What Does a Government Shutdown Mean for Stocks?”

• MarketClutch, “How Government Shutdowns Affect Stock Market Performance”

• FinHabits, “What Happens to the Stock Market During a Government Shutdown?”

• Yahoo Finance, “The Worst Government Shutdowns and the Stock Market”

• Accounting Insights, “Does a Government Shutdown Affect the Stock Market?”

• Landmark Wealth Management, “The Historical Impact of U.S. Government Shutdowns on the Stock Market”