Key takeaways
January 19 deadline
If Congress doesn’t pass spending bills by the deadline, parts of the government may shut down.
Limited market impact?
Past shutdowns, but not all, led to market volatility, which tended to resolve quickly with minimal to no impact.
Think long-term
Don’t let any short-term market volatility from a government shutdown impact your long-term investing plan.
It’s a new year, and new US government shutdown deadlines are already on the horizon. Some agencies are facing a funding deadline of January 19, and others face a deadline of February 2. While a prolonged period of policy uncertainty typically increases market volatility, past shutdowns have tended to be resolved quickly with minimal to no impact on markets. That’s why it makes sense to stick to a long-term investment plan. Here are three things for investors to keep in mind about government shutdowns.
1. Shutdowns are relatively common and tend to resolve quickly
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
2. Volatility increased in some, but not all, past shutdowns
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.
3. Stocks, on average, advanced despite shutdowns
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 $8.3 million today.4
Stick to long-term investing plans
While unnerving, concerns about shutdowns shouldn’t change investors’ long-term investment plans. This isn’t the first government shutdown, and it’s likely not 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.”
Footnotes
- 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.
- Sources: Bloomberg L.P. and US Treasury, 12/31/22. The S&P 500 Index is a market-capitalization-weighted index of the 500 largest domestic US stocks. An investment cannot be made into an index. Past performance does not guarantee future results.
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Originally Posted January 10, 2024
What investors need to know about government shutdowns by Invesco US
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