If Congress doesn't pass a spending bill or continuing resolution by midnight on December 20, parts of the government will start to shut down.
Many past shutdowns (but not all) led to market volatility, which tended to resolve quickly with limited to no impact.
Don’t let any short-term market volatility from a government shutdown change your long-term investing plan.
With much of the country looking ahead to the holidays, the US government could be on the verge of a shutdown. Without some sort of stopgap, a partial shutdown could begin December 21 with a full shutdown to follow. Long periods of policy uncertainty generally lead to market volatility. But past shutdowns have tended to resolve quickly with little market impact. Sticking to a long-term investment plan may be the best way forward. Here are three things for investors to remember about government shutdowns.
There have been 21 government shutdowns in US history according to the US Treasury. They’ve been resolved, on average, within eight days. Five only lasted a day. The longest lasted 34 days.1
Market volatility often results from policy uncertainty. While there are examples of heightened volatility, for the most part, it’s been generally benign during past government shutdowns.
Source: Bloomberg L.P., 12/31/22. The Dow Jones Industrial Average is a price-weighted index of the 30 largest, most widely held stocks traded on the New York Stock Exchange. Volatility is measured by the standard deviation of price moves on returns of the index. Standard deviation measures a range of total returns for a portfolio or index compared to the mean. An investment cannot be made into an index. Past performance does not guarantee future results.
While the S&P 500 Index, on average, churned in the days leading up to and during government shutdowns, it advanced in the aftermath.2 The Index also posted positive returns during 12 of the 21 government shutdowns. The average return during the shutdowns is 0.1%.3 (Remember, shutdowns have been resolved, on average, within eight days.) Plus, despite experiencing 21 government shutdowns along the way, a $100,000 investment in the S&P 500 Index in 1957 would be worth $12.6 million today.4
While unnerving, concerns about shutdowns shouldn’t change investors’ long-term investment plans. This wouldn't be the first government shutdown, and it likely wouldn't be the last. Ultimately, I’d expect the spending bills to pass without incident. As Winston Churchill may have said, “Americans always do the right thing, but only after exhausting all other options.”
Source: US Treasury, 8/31/23
Source: Bloomberg L.P., 8/31/2023. An investment cannot be made into an index. Past performance does not guarantee future results.
Source: Bloomberg, L.P. 12/31/22. An investment cannot be made into an index. Past performance does not guarantee future results.
Source: Bloomberg L.P., 12/19/24. The S&P 500 Index is a market-capitalization-weighted index of the 500 largest domestic US stocks. Performance based on price returns. An investment cannot be made into an index. Past performance does not guarantee future results.
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Past performance is not a guarantee of future results.
Indexes are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment.
Past performance does not guarantee future results.
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In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.
The opinions referenced above are those of the author as of Dec. 19, 2024. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
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