Government Shutdown Begins: What It Means for Markets and the Economy
At 12:01 a.m. on October 1, federal funding lapsed, and the U.S. government entered a shutdown. Without a stopgap agreement, many federal employees face furloughs, nonessential services pause, and the release of key economic data halts. While essential functions like air traffic control and national security remain in place, the funding gap will ripple through agencies and the broader economy.
Economic and Market Impacts
Shutdowns slow government activity, delay programs, and temporarily withhold pay for workers who then spend less until operations resume. Economists estimate each week of a shutdown trims a fraction of a percent from GDP, though the economy usually recaptures much of that activity once funding resumes. During the 2018–2019 shutdown, which lasted several weeks, the Congressional Budget Office estimated the government delayed about $18 billion in federal spending, which caused an $11 billion GDP hit across late 2018 and early 2019. The economy permanently lost about $3 billion—roughly 0.02%. [1]
Financial markets often react to shutdowns with initial volatility as investors adjust to uncertainty. However, history shows that shutdowns typically have only a temporary impact. In longer standoffs, markets focus more on broader economic conditions, such as Federal Reserve policy or global trade, than on the shutdown itself.
Seeking Certainty in an Uncertain Market Guidebook
5 Do and Don’t Best Practices – This guide outlines five key practices to help you stay grounded, think clearly, and make decisions that align with your long-term goals.
Savant’s Perspective
For long-term investors, the bigger picture remains reassuring. Markets have weathered shutdowns before, often with only temporary setbacks. During the 2018-2019 shutdown, the S&P 500 fell 2.7% on the first trading day after the shutdown began, then rebounded nearly 5% the next day. By the end of the 35-day shutdown, the S&P 500 had risen by more than 10%. [2] Even when the government closes its doors, the economy and financial markets eventually move forward. What matters most is how investors respond in the face of uncertainty.
At Savant, we see this as a timely reminder of our core investment philosophy:
- Markets work. Over time, they digest headlines, shocks, and even political gridlock, ultimately reflecting fundamentals like earnings and valuations.
- Diversification is your ally. A globally diversified portfolio cushions the impact of unexpected events in any single market or sector.
- Control what you can control. We can’t dictate what Congress will do or how long this shutdown will last, but we can stay disciplined, monitor risk, and align with your long-term goals.
Shutdowns can unsettle investors, but they don’t diminish the value of a well-constructed financial plan. By maintaining perspective and tuning out the noise, investors can navigate periods like this with confidence and stay on course toward their financial goals.
This is intended for informational purposes only and should not be construed as personalized financial advice. Please consult your financial professional regarding your unique
Torin E. Kasper
Investment Research Analyst
MS