Stocks Can Still Go Up When the Government Shuts Down
Government shutdowns may disrupt operations, but history shows markets stay resilient—stocks often end flat or higher once funding resumes.
The US government shut down after Congress was unable to reach a funding agreement. This is the 11th shutdown since 1981.1 During these shutdowns, many nonessential functions of the government cease. In most cases, the fiscal shortfall was resolved within a few days. However, four shutdowns lasted at least five days.
How did stocks fare during these prolonged episodes? The US market ended higher at the conclusion of three and was flat in the other.
So, while a shutdown may be a nuisance,2 history suggests it’s probably not cause for concern in your portfolio.
EXHIBIT 1
Government Shutdowns Since 1981
EXHIBIT 2
Growth of Wealth for the Fama/French Total US Market Index During Government Shutdowns Lasting at Least Five Days, Since 1981
index description
Fama/French Total US Market Research Index: Fama/French Total US Market Research Factor + One-Month US Treasury Bills. Source: Kenneth R. French—Data Library (dartmouth.edu).
Results shown during periods prior to each index’s inception date do not represent actual returns of the respective index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP.
Footnotes
1. The appropriations process through which the federal government budget is allocated became stricter about shutting down government operations in the event of a funding gap after legal opinions issued in 1980 and 1981.
2. Especially for those with travel plans, since the impacted services may include the Transportation Security Administration (TSA).
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