Should Investors Be Worried About This Government Shutdown? On October 1st, 2025, the U.S. government officially shut down for the 22nd time since 1976. While these events grab headlines and stir political drama, investors naturally wonder if this poses real risks to their portfolio?
Well, the short answer to that is that history shows government shutdowns have limited and temporary effects on the markets and the economy.
Don’t believe us? Here’s exactly why this is true.
How Often Do Government Shutdowns Occur?
Shutdowns aren’t rare. Since 1981, there have been 10 shutdowns, with the average lasting about 9 days.
The longest, which was 34 days in 2018–2019, cost the economy around $11 billion in GDP, but only $3 billion was permanently lost. That amounted to roughly 0.02% of GDP, which was barely a blip in the long run.
What Happens During a Government Shutdown?
When Congress fails to pass appropriations legislation or a continuing resolution, non-essential federal government operations are suspended, and many employees are furloughed.
However, it’s important to keep in mind that many functions continue to operate.
- Mandatory spending obligations like Social Security, Medicare, and Medicaid are typically unaffected.
- Essential services (e.g. air traffic control, national security, disaster relief) operate under “excepted” status.
- Other agencies will scale back or halt discretionary operations, delay permits, or shutter public-facing services.
The Market’s Reaction to a Government Shutdown?
You’d be surprised to know that markets have taken shutdowns in stride.
Stocks sometimes sell off modestly before a shutdown and often rally once it begins.
While, bond yields typically tick higher before the deadline, then fall back during the shutdown.
In fact, after the 2013 and 2018 shutdowns, the S&P 500 experienced strong gains in the 100 days following the government shutdown’s end.
So, investors tend to see shutdowns more as short-term political theater than something that is going to impact the markets long term.
What About This Current Government Shutdown?
This government shutdown may be slightly different than some of the previous ones we’ve had in the past.
The government may stop releasing key economic data, which includes the September jobs report and inflation figures.
That’s going to become a headache for the Federal Reserve, which relies on this data to guide interest rate decisions.
So, it may add some short-term uncertainty for investors.
Should Investors Be Worried About This Government Shutdown?
In the short term, some volatility is possible, especially with stocks near all-time highs.
But In the long term, shutdowns have not derailed economic growth or market performance.
So, we think that as long as you maintain a diversified portfolio, block out the noise, and rebalance if we experience some volatility, then you should be well-equipped.
If you have any questions, feel free to email us at service@moneyletter.com.