A Detailed Analysis
During the government shutdown, many have understandable concerns about how this political impasse might affect their investments and financial plans. While the daily headlines can be alarming, we wanted to share what five decades of market history tells us about government shutdowns and provide you with the perspective that comes from rigorous analysis rather than political rhetoric.
The Current Situation in Context
The United States is currently experiencing its 22nd funding gap since 1976 and the 11th operational government shutdown since 1981. This shutdown began at 12:01 AM on October 1st when Congress failed to pass a continuing resolution to fund government operations. While Senate Republicans need at least eight Democratic votes to overcome the 60-vote filibuster threshold, the political dynamics have created an extended stalemate that shows few signs of immediate resolution.
What makes this shutdown somewhat different from its predecessors is the current administration’s approach. Unlike previous shutdowns where federal workers were temporarily furloughed with the expectation of back pay, this administration has begun issuing “reduction in force” notices to over 4,000 workers, signaling potential permanent layoffs rather than temporary disruptions. Additionally, the newly established Department of Government Efficiency has embedded teams throughout federal agencies reviewing spending and budget processes.
What Markets Have Taught Us
When we examine nearly fifty years of shutdown data, a remarkable pattern emerges that should provide considerable comfort to long-term investors. Far from the economic catastrophe that political theater might suggest, government shutdowns have historically had minimal impact on market performance, and in many cases, markets have actually performed better during these periods.
During the 20 government shutdowns from 1976 to 2019, the S&P 500 posted positive returns in 55% of cases, with an average return of +0.21%. Perhaps more importantly, when we look at performance one year after shutdowns ended, markets were positive in 75% of cases, averaging an impressive +10.84% return.
The longest shutdown in American history occurred just six years ago during the 2018-2019 period, lasting 35 days. Rather than cratering, the S&P 500 gained an extraordinary 10.3% during that period. Conversely, some of the worst market performance during shutdowns occurred during brief closures, such as the 11-day shutdown in 1979 that saw a -4.4% decline. This data reveals something crucial: the duration of a shutdown matters far less than the broader economic context in which it occurs.
Why Markets Remain Resilient
The reason markets have historically shrugged off government shutdowns becomes clearer when we consider what actually drives economic growth and corporate earnings. The federal government, while important, represents roughly 20% of total economic activity. The vast majority of business operations, consumer spending, and corporate earnings continue uninterrupted during shutdowns. Companies still produce goods, provide services, and generate profits. Consumers still make purchases. The engines of capitalism continue running regardless of whether Congress has passed a budget.
Moreover, markets have learned from experience. The 1970s saw more volatility during shutdowns because investors weren’t sure what to expect. The six shutdowns during that decade averaged -2.25% returns. But as shutdowns became more routine political theater, markets adapted. During the eight shutdowns of the 1980s, returns averaged +0.42%. By the time we reached the 2010s, markets were so comfortable with the shutdown playbook that the three shutdowns of that decade averaged +4.73% returns.
The Economic Reality
This isn’t to say that shutdowns have no economic impact. Each week of shutdown reduces annualized GDP growth by approximately 0.1-0.2 percentage points. The 2018-2019 shutdown cost an estimated $11 billion in economic output. However, most of this activity is delayed rather than destroyed. When shutdowns end, there’s typically a catch-up period where delayed economic activity resumes.
Currently, approximately 750,000 federal workers are either furloughed or working without immediate pay. While this creates genuine hardship for those families, it represents less than 0.5% of the total U.S. workforce. Essential services including Social Security payments, Medicare processing, air traffic control, and military operations continue uninterrupted.
One area where we are seeing some disruption is in economic data reporting. Key indicators like employment reports and inflation data may be delayed, which can create short-term uncertainty for Federal Reserve policymaking. However, markets have numerous private sector indicators to rely on, and these data delays are temporary inconveniences rather than fundamental economic problems.
Looking at Your Portfolio
From a portfolio management perspective, our approach remains focused on the fundamental factors that drive long-term investment success rather than temporary political disruptions. Corporate earnings for the companies in your portfolio continue to be generated. Dividend payments continue to be made. The innovative capacity of American businesses continues to create value for shareholders.
Importantly, resilient financial planning is rooted in anticipating periods of uncertainty and building strategies that absorb short-term shocks without derailing long-term objectives. One such approach is our Bucket Strategy, which segments your portfolio by time horizon and income needs. By organizing assets into short-term, intermediate, and long-term “buckets,” clients can draw necessary income from lower-risk, highly liquid holdings even if the market faces short-term volatility due to shutdowns or other disruptions. This means that withdrawals for living expenses come from stable, conservative investments, providing peace of mind and reducing the need to liquidate growth assets in a down market. The long-term bucket remains invested for future growth, allowing for market recovery over time while remaining insulated from immediate political drama or market swings.
If anything, government shutdowns sometimes create short-term opportunities. Federal contractors, tourism companies, and certain government-dependent sectors may see temporary weakness that doesn’t reflect their long-term fundamentals. Conversely, technology companies, healthcare firms, and other private sector businesses often demonstrate their independence from government operations during these periods.
The data strongly suggests that the most successful investment strategy during shutdowns is often the most boring one: stay the course. Attempting to time markets around political events has historically been a losing proposition. The investors who have benefited most from shutdown periods are those who maintained their long-term perspective and continued their regular investment programs.
A Personal Note
We understand that watching the daily political drama can be stressful, particularly when your financial security feels at stake. It’s natural to wonder whether this time might be different, whether the political dysfunction has reached a point where markets might finally lose confidence in American governance.
What we can tell you is that American markets have weathered far more serious challenges than government shutdowns. We’ve navigated world wars, financial crises, oil embargos, terrorist attacks, and global pandemics. Each time, the resilience of American enterprise and the adaptability of our economic system has ultimately prevailed.
Government shutdowns, for all their political drama, represent temporary inconveniences rather than fundamental threats to the economic system that generates your investment returns. The companies in your portfolio will continue innovating, producing, and growing regardless of whether Congress has passed a budget this week or next.
Final Thoughts
The political rhetoric will likely intensify, and the daily headlines will continue to generate anxiety. We encourage you to remember that markets are forward-looking mechanisms that focus on earnings, growth, and fundamental value creation rather than the temporary dysfunction of Washington politics.
The same American entrepreneurial spirit that has driven market returns for generations continues to operate regardless of whether Congress can agree on a budget. Your diversified portfolio, built on the foundation of global economic growth and human innovation, remains positioned for long-term success despite the current political theater.
We’ll continue monitoring developments and will reach out immediately if we see any fundamental changes that might affect our investment strategy. In the meantime, we encourage you to stay focused on what you can control: your savings rate, your long-term goals, and your commitment to the disciplined investment approach that has served you well through previous challenges.
As always, we’re here to answer any questions and provide the guidance you need to navigate these uncertain times with clarity and purpose.
Copyright © 2025. BCA Private Wealth. All rights reserved.
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Please review BCA Private Wealth Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.
This material is prepared by BCA Private Wealth for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
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