Funding for the US government lapsed early on Wednesday 1 October, triggering a shutdown that will halt some federal services and furlough around 750,000 federal employees. Looking at prior government shutdowns, there has historically been minimal impact on the stock market. Bond markets have been more sensitive, with US Treasuries often declining during government shutdowns, although this is likely due to shutdowns often being accompanied by debt ceiling issues, something which is absent this time out.
The market impact of past government shutdowns has been minimal. There have been 10 government shutdowns since 1980 and on only two of these occasions have US equities declined during the period. These declines were modest, low single-digit declines, and more often than not, US stocks have gained during government shutdowns. The previous shutdown in 2018/19 was the longest of the 10 shutdowns since 1980, lasting 35 days, and US equities posted double-digit gains during that period. US stocks rose 0.4% on Tuesday, making it three consecutive daily gains and suggesting that there has not been much concern among investors as the shutdown deadline drew closer. Meanwhile the US equity market futures at the time of writing, suggest the market will open down just 0.6%. Bond market prices are currently flat.
