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The federal government shut down on Oct. 1, 2025, when Republicans and Democrats couldn't agree on a budget deal. During a shutdown, federal agencies stop all nonessential activities, and government employees may be furloughed. Once rare, government shutdowns and funding gaps have become more frequent in recent years, although most don't last long.
A government shutdown can be worrying for investors, but it doesn't necessarily mean there's trouble ahead for the stock market. Here's exactly how the stock market has performed during government shutdowns to date, as measured by the S&P 500 index.
There's no clear correlation between government shutdowns and the stock market's performance. The odds of a positive market performance during a shutdown are a little better than a coin flip (54%), and the average return across government shutdowns and funding gaps since 1976 overall is 0.2%.
In addition, with every shutdown since 1980, the S&P 500 has ended up higher one month after the start of the event.
It might seem that lengthy shutdowns would be more likely to have a negative impact on the market, but that hasn't been the case. The stock market had its best performance during a government shutdown or funding gap, a 10.3% return, during the longest shutdown, which lasted 35 days, from Dec. 22, 2018, to Jan. 25, 2019. It also did well during a 17-day shutdown in October 2013, growing by 3.1%.
To be fair, there were also several shutdowns of 10 days or longer in the 1970s during which the stock market finished with a negative return. Over short periods of time, the stock market remains unpredictable regardless of the political climate.
Long government shutdowns are relatively uncommon; the median shutdown lasts just four days. Many of the most recent occurrences were actually close calls lasting less than a day, with a bill getting passed right at or after the deadline and being signed into law a few hours later, resulting in a short funding gap.
From an economic perspective, government shutdowns tend to be minor events. Analysts estimate that shutdowns can reduce gross domestic product (GDP) growth by 0.1% to 0.2% for every week the government is closed. Most shutdowns don't last a week in the first place.
There's usually no long-term impact to the economy from a government shutdown. Any shutdown-related damage is temporary, and the economy recovers when the government reopens. Knowing that, investors largely hold the expectation that everything will be back to normal soon enough.
Government shutdowns also don't come as a surprise anymore. For one, disagreements on spending bills have happened more often as Congress has become increasingly polarized, making funding gaps and shutdowns normal occurrences that investors have experienced in the past.
Shutdowns also don't happen without warning. Investors typically know about the possibility of a shutdown weeks in advance, giving them plenty of time to prep their investment portfolios.
While the stock market can end up with either a positive or a negative return during a government shutdown, the cause isn't the shutdown itself. It's the broader economic conditions. For example, the stock market's 10.3% surge during the 35-day shutdown in 2018 was largely due to the Federal Reserve signaling a more relaxed stance on interest rates.
While the political climate is worth monitoring, a government shutdown shouldn't play a part in how you invest in stocks. After all, investing is a long-term endeavor lasting years and, ideally, decades. Thankfully, government shutdowns are much shorter events, and they don't affect the fundamental value of the stock market or the businesses in it.