Market Insights During Extended Shutdowns
October 23, 2025
The government shutdown is at the forefront of the current news cycle and is now entering its fourth week. We expect these headlines to grow louder, adding to political noise and polarization.
As we look at the markets and the economy, our goal is to provide you with perspective and keep you updated. While some investors are watching for signs of an economic slowdown, our focus remains on helping clients make sense of the changing landscape—identifying both the risks and opportunities that may arise. It's important to remember that the planning we have done together aligns each part of your goals, risk tolerance, and time horizon.
Key Points to Consider:
The current government shutdown is now in the top three longest shutdowns ever, primarily affecting government workers and their families, as well as those who depend on government services. By law, furloughed employees should receive all backpay once the shutdown ends.
Reduction In Force (RIF): What makes this shutdown unique is that the federal government is pursuing layoffs, also referred to as "reductions in force" or RIFs. Without minimizing the impact on the lives of affected government workers and their families, it is important to note that federal government employment only makes up 1.8% of the entire workforce. Recent reduction in force notices represent just 0.0018% of the total labor market, a small slice of the entire economy.
Historically, government shutdowns have never had long-term effects on the stock market. The longest shutdown in history lasted 35 days during President Trump's first term from 2018 to early 2019. While the past is no guarantee of the future, the S&P 500 went on to gain 31.5% with dividends in 2019.
Extended shutdowns can create modest economic growth headwinds as federal employees postpone spending and government services experience disruptions. However, much of this lost economic growth is simply postponed until the government reopens.
The key drivers of investments, such as corporate earnings, valuations, interest rates, and inflation are unlikely to significantly shift as a result of the government shutdown. The shutdown is also distinct from the debt ceiling, which has led to credit downgrades in the past.
Government shutdowns will likely attract media attention, present difficulties for federal employees, and interrupt essential services. They historically represent temporary interruptions and have minimal financial market impact. While we might see some ups and downs in the short-term, the bigger picture still looks positive.
Government shutdowns are not a reason to make changes to your financial plan. That said, if your financial situation or objectives have shifted, please don't hesitate to reach out for a further conversation.
If you have specific questions or would like to discuss your own investment strategy or financial planning needs, we welcome you to contact us to set up time to discuss further.
Disclosures:
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