What Happens to the Stock Market When Washington Closes?

Every few years, it seems like we find ourselves back in the same place: lawmakers in Washington at an impasse, deadlines passing, and the word “shutdown” splashed across headlines. For investors, these moments often spark the same question: What does a government shutdown mean for the stock market?

The reality is that shutdowns have a way of feeling more dramatic than they often turn out to be. That doesn’t mean they’re irrelevant, but history shows that the market’s relationship with shutdowns is far more nuanced than the alarmist tone that the news cycle suggests.

When the government shuts down, it doesn’t simply lock the doors and walk away. Essential services (things like air traffic control, national security, and emergency medical care) continue. However, many federal employees are furloughed, and others are asked to work without pay until funding is restored. Agencies like the Securities and Exchange Commission and the Internal Revenue Service scale back operations, which can ripple through to the private sector.

One of the under-appreciated consequences is the disruption of economic data. Monthly jobs reports, inflation releases, and other government statistics may be delayed or published in incomplete form. That makes life harder for investors, because without clear data, the Federal Reserve and the markets are left flying partly blind. Add in the drag of lost wages for furloughed workers and delayed federal contracts, and you can see how growth can take a short-term hit. Economists estimate that each week of a shutdown can shave off a measurable fraction of GDP.

While the economic effects are real, the stock market’s response has historically been more muted. Looking back over the past few decades, equities have sometimes sold off during shutdowns, but they’ve just as often gained ground. In fact, research shows that markets tend to bounce back in the months following the end of a shutdown, almost as if they treat it as political theater rather than a permanent impairment to economic health.

Source: © Exhibit A, FactSet Research Systems Inc., Standard & Poor's | Latest: 2019-01-25
This slide is for informational and illustrative purposes only. The data provided is believed to be accurate, but there is no guarantee of its accuracy, completeness, or timeliness. This is not a recommendation or offer of any financial product. Past performance is not indicative of future results, and investors should consider their own obiectives and risk tolerance. Indices, if presented, do not include fees, are unmanaged, and not available for direct investment. Definitions & Methodology: The S&P 500 tracks the performance of 500 large-cap U.S. companies, serving as a benchmark for the U.S. stock market. The index is market cap weighted. The chart shows the market S&P 500 price returns from the start to the end of government shutdowns since 1980. The government shutdown start and end dates are as follows: Nov 1981 (11/19/1981-11/23/1981), Sep 1982 (9/29/1982-10/2/1982), Oct 1984 (10/2/1984-10/5/1984), Oct 1986(10/15/1986-10/18/1986), Oct 1990 (10/4/1990-10/9/19903, Nov 1995 (11/10/1995-11/19/1995), Dec 1995 (12/14/1995-1/6/1996), Sep 2013 (9/27/2013-10/17/2013), Jan 2018(1/18/2018-1/22/2018), and Dec 2018 (12/20/2018-1/25/2019).

Take the record-long shutdown of 2018–2019. It dragged on for 35 days and cost the economy billions in lost output. Yet, once it ended, the market quickly moved higher. Investors seemed to recognize that while the short-term pain was real, the long-term trajectory of corporate earnings and consumer demand wasn’t permanently altered.

Every shutdown unfolds against a different backdrop, and that context matters. In 2025, the stock market is at an all-time high, but valuations are also above long-term averages. The labor market, while resilient, is showing signs of cooling, and the Federal Reserve is delicately balancing its fight against inflation with the risk of tipping the economy into recession.

In that environment, a shutdown complicates things. With critical economic data potentially delayed, the Fed may have to make decisions without the whole picture, which increases uncertainty. Investors, too, may feel less confident without timely information about job growth or inflation trends. Confidence is a fragile ingredient in markets, and uncertainty can quickly turn into volatility.

Certain parts of the economy are more exposed than others. Companies that heavily depend on government contracts, such as defense contractors or infrastructure firms, may experience disrupted cash flows if projects are put on hold. Initial public offerings and other capital market activity can stall if the SEC is unable to process filings. Consumer sentiment could also take a hit if headlines about furloughed workers and frozen paychecks persist, particularly if households already feel strained by higher living costs.

The most important lesson from history is that government shutdowns, even the longest ones, have not derailed the market’s long-term path. They create noise, cause temporary disruptions, and test investor patience. However, markets are ultimately driven by fundamentals (earnings, growth, interest rates, and innovation) rather than short-term political drama.

That perspective doesn’t eliminate volatility, but it helps investors avoid the costly mistake of reacting emotionally to every headline. Selling into fear has rarely been a winning strategy. Instead, moments like this often present opportunities. When markets sell off for reasons that don’t permanently change the outlook for strong businesses, long-term investors can benefit from the dislocation.

At the same time, it’s worth acknowledging that a shutdown is not meaningless. It can dent confidence, delay economic activity, and even signal deeper political dysfunction. Those factors should be part of an investor’s risk assessment. However, they should be weighed against the broader context, not treated as a signal to abandon a well-constructed plan.

If there’s one thing markets dislike, it’s uncertainty — and a government shutdown certainly qualifies. But uncertainty is not new, and it’s not going away. Investors who maintain perspective, focus on the long term, and remember that political cycles come and go are far better positioned to weather the noise.

The bottom line is that shutdowns are unsettling, but they rarely move the market needle. They may spark headlines and cause markets to wobble, but for patient investors with a long-term horizon, history suggests that storm clouds usually pass, and the market resumes its course once Washington finds its footing again.

If you’d like to discuss how moments of political and market uncertainty may affect your portfolio, and the strategies that can help you stay on course, we’d be glad to connect. Reach out to our team anytime.

~ Steve Gormley

All investing involves risk, including the potential loss of principal, and no strategy can guarantee success. This material is for general informational purposes only and is not intended as individualized investment, tax, or legal advice. The information contained herein reflects current opinions as of the date of publication and is subject to change without notice.