What Investors Need to Know About Government Shutdowns

Key takeaways

September 30 deadline

If spending bills aren’t passed by Congress by the deadline, 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.

Congress needs to pass spending bills by September 30 to avoid a government shutdown. Some members of Congress are demanding substantial spending cuts, which may hold up passage of the bills and lead to a government shutdown. 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 September 18, 2023

What investors need to know about government shutdowns by Invesco US

Important Information

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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.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

All investing involves risk, including the risk of loss.

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 September 18, 2023. 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.