Government Shutdowns Usually Don't Bother Stocks. Could This Time Be Different?

Core Insights - The S&P 500 has historically risen during government shutdowns, with the last decline occurring in 1990 [2][6] - The current government shutdown, the first in six years, has not significantly impacted the stock market, as the S&P 500 was up 0.3% during the shutdown [2][4] - Investors have generally prioritized corporate earnings and macroeconomic trends over budget-related disruptions, indicating a resilient market outlook despite the shutdown [4][6] Market Performance During Shutdowns - Over the past 50 years, the average S&P 500 return during government shutdowns has been a decline of 1.6%, with the worst shutdown in 1979 resulting in a loss of over 6% [2][4] - The longest shutdown in history lasted from December 22, 2018, to January 25, 2019, during which the S&P 500 rose more than 10% as investors focused on the Federal Reserve's dovish policy shift [4][6] Economic Impact and Forecasts - Economists estimate that the current shutdown could reduce economic growth by 0.1 to 0.2 percentage points for each week it lasts [9] - The shutdown halts the release of key economic data, which may hinder the Federal Reserve's decision-making process regarding interest rates [10][11] - Limited visibility on economic indicators could lead to a cautious approach from policymakers regarding anticipated rate cuts [12] Investor Sentiment - Recent data center deals have reassured investors about strong AI demand, contributing to a generally optimistic outlook for the upcoming third-quarter earnings season [7] - Individual investors remain cautiously optimistic about the stock market despite the uncertainties introduced by the shutdown [7]