Shutdown reaction: 'History says shutdowns have little to no effect' on stocks

US markets remain resilient following the federal government's shutdown. While initial reaction showed a slippage in stock futures and the dollar, the S&P 500 rose and hit a record intraday high during afternoon trading, CNBC reported. 

The government shut down this past midnight after Congress failed to pass a short-term funding bill, halting non-essential operations. Roughly 750,000 federal employees have been furloughed, though essential workers, including military personnel and Transportation Security Administration agents, will continue to work without pay. Programs with separate funding streams — such as Social Security and the Postal Service — will remain largely unaffected.

Despite the political drama, analysts say investors should not panic. Ryan Detrick, Chief Market Strategist at Carson Group, emphasized to InvestmentNews that shutdowns historically have little impact on financial markets.

“What could a shutdown do for stocks you ask? The good news is history says shutdowns have little to no effect on them,” Detrick said. “In fact, the last shutdown, in 2018–2019, was a record 34 days and stocks gained more than 10%.”

“The market appears unconcerned,” Louis Navellier, founder of Navellier & Associates, told CNBC. “The hopeful dip buyers are going to have to wait. Momentum remains positive.”

This is the 15th government shutdown since 1980, with the last major standoff in 2018–2019 stretching 35 days. Lawmakers are scheduled to return Friday to resume negotiations, though no clear path forward has emerged.

“The impact on markets really depends on how long the shutdown lasts, especially with key government data like jobs and CPI reports that could be delayed. While it certainly erodes investor confidence, we've been through this before, and I don't expect this to rattle markets too much," said Anshul Sharma, chief investment officer at Savvy Wealth. "Advisors should remind their clients to remain focused on broader economic trends and their long term investment plans. This is not a moment to change course, however, if there is any meaningful pullback it could even present an opportunity to put excess capital to work,” Sharma said.

A review of market history supports that claim. Since 1976, there have been 21 shutdowns, with an average duration of just eight days. The S&P 500 has typically traded flat or slightly higher during these periods, with the largest decline of 2.2% occurring during a shutdown in the late 1970s. For fixed income, US Treasuries have generally been insulated, with borrowing operations continuing as “essential” functions.

Adam Turnquist, Chief Technical Strategist at LPL Financial, noted to InvestmentNews that broader economic forces often outweigh short-term disruptions from budget battles. “While the government shutdown introduces a new layer of uncertainty for markets, they have historically been short-lived and, as a result, have had minimal impact on the economy,” he said. “Investors have generally looked past budget-related disruptions, prioritizing corporate earnings, broader economic trends, and other key macroeconomic factors.”

For example, Turnquist noted, during the 2013 shutdown — which lasted 16 days — the S&P 500 actually rose 3.1%. Even during the 2018–2019 episode, the market advanced more than 10%, largely because the Federal Reserve shifted its policy stance at the time.

Monica Guerra, head of US policy at Morgan Stanley Wealth Management, noted prior to the event that “shutdowns are common, and once resolved, agency operating budgets and employees are made whole, blunting any broader market and economic impacts.

The current shutdown, while disruptive for federal workers and the public, is unlikely to derail broader economic momentum in the short term. Still, analysts caution that the longer the standoff drags on, the greater the potential costs to productivity and consumer confidence.

Update: Story has been updated with added comments from Anshul Sharma of Savvy Wealth.