Once again, the headlines are focused on the government shutdown. We wanted to provide some context, historical perspective, and our view on what this may — and may not — mean for financial markets over the coming 6 to 12 months. Our goal is to help you stay grounded amid the headlines and maintain a long-term perspective. As always, we are here to answer any questions or address any concerns you may have.

1) How common are government shutdowns — and what’s their track record?

It may surprise many that government shutdowns are not once-in-a-generation anomalies. They have become a recurring feature of American politics in recent decades.

• Since 1980, there have been about 10 funding-lapse shutdowns that led to federal employees being furloughed.
• Some sources count up to 14 shutdowns since 1980, depending on inclusion criteria.
• Shutdowns vary in length: many last just a few days, though a few have stretched into weeks.
• The longest shutdown in U.S. history ran 35 days from December 2018 to January 2019.

The media often frames a looming shutdown as “this time it’s different,” but in reality, we’ve seen repeated cycles of appropriations battles, continuing resolutions, and occasional shutdowns. What changes is not the mechanics, but the political context and the stakes being debated.

2) What is and isn’t impacted in a shutdown

It’s worth distinguishing between what typically pauses (or slows) and what continues even if a shutdown occurs.

What is often curtailed or halted:

• Non-essential federal programs and discretionary activities (e.g., national parks, museums, regulatory or permitting functions).
• Agencies with discretionary funding (e.g., parts of HHS, Education, or Interior) may furlough staff.
• Economic data releases (e.g., employment or census reports) can be delayed or suspended.

What typically continues:

• “Mandatory” programs funded separately, such as Social Security, Medicare, Medicaid, and veteran benefits.
• Essential life-and-safety functions (e.g., defense, air traffic control, border security) — though often without timely pay until funding is restored.
  • The U.S. Postal Service, which is funded outside the appropriations process.
• Debt servicing, meaning interest and principal payments on U.S. debt continue.

In other words, a shutdown is disruptive to many discretionary federal operations — but it is not a total paralysis of government or the economy.

3) Market and economic impacts in the 6–12 months following shutdowns

           (a) Market returns historically recover

• According to American Century, since 1976, the S&P 500 has delivered solid gains in the 12 months following 18 out of 20 shutdowns. (American Century Investments)
• Some analyses suggest that during shutdowns, equities often see only modest moves; post-shutdown, the market tends to resume its longer-term trend. (institutional.fidelity.com)
• In the 2018–2019 shutdown (the 35-day longest closure), the S&P 500 rose nearly 24 % over the subsequent year. (Kiplinger)
• In other shutdowns, performance has been similarly favorable. One summary: over many episodes, 12 months later stocks were higher in 15 out of 16 cases, with an average gain of ~16 %. (MoneyFlows)
• Six months post-shutdown, some data show average gains of ~9.7 %. (MoneyFlows)

          (b) Economic drag is usually modest

• The Congressional Budget Office estimated the 2018–2019 shutdown reduced GDP by 0.1% in Q4 2018 and 0.2% in Q1 2019.
• Shutdowns can create “blind spots,” as missing or delayed economic data makes policymaking and market analysis more difficult.

In short, the economic headwinds from a typical shutdown are usually manageable and short-lived — though headlines may amplify uncertainty.

4) Putting it in perspective — what we expect, and what we’re watching

• Shutdowns may create short-lived volatility and sentiment shocks, but long-term economic and corporate fundamentals matter more.
• If resolved cleanly, history shows markets often rebound and deliver solid gains within the following year.
• The greater risks are less about the shutdown itself and more about the potential for prolonged gridlock, delayed policymaking, or shaken investor confidence.
• We continue to monitor the broader fiscal and monetary landscape, debt ceiling discussions, and any ripple effects across credit, confidence, and capital flows.
• We believe in the fundamentals — earnings strength, balance sheet health, and macro stability — with flexibility to adjust should conditions shift.

5) Key takeaways for clients

• Shutdowns are not new — they’ve occurred regularly in recent decades, often lasting only days or weeks.
• While funding gaps disrupt certain operations, core programs (Social Security, Medicare, debt servicing) generally continue, and a shutdown is not a default.
• Historically, financial markets have weathered shutdowns well, with equities often delivering positive returns 6 to 12 months later.
• The real risk lies not in the shutdown itself, but in how policymakers and investors respond.
• Our planning already accounts for periods of volatility, whatever the cause.

We remain committed to helping you stay informed, steady, and focused on long-term growth — even during short-term political storms. As always, please don’t hesitate to reach out with any questions or concerns. We’re here for you, and if your friends or family have questions, we welcome them to connect with us as well.

 

Any opinions are those of Randy Carver and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions