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Government Shutdowns: Not Much To Worry About

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Using history as a guide, a government halt wouldn't set the markets back too far.

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The latest news out of Washington points to a political resolution that should avoid a shutdown of the Federal government.

But what if?

There have been 17 government shutdowns due to budget gaps since 1976. The table below shows how the S&P 500 performed surrounding the shutdowns.



These were usually very temporary affairs, lasting a median of only 3 days... and during the past 30 years, only one lasted longer than a week.

There wasn't too much of a negative impact during the bluster leading up to the shutdown, with the S&P performing about in line with random. But during the shutdown, stocks were a bit weaker.

Ironically, the market's worst performance was during the "Hooray, we saved the government!" period of the week following the shutdown. It was positive only 35% of the time, with an average return of -0.2.%. Six of the last eight were negative during that span.

By a month later, the market was back to normal, sporting a healthy average return and percentage of time positive, both a bit higher than what we see randomly. Overall, there doesn't seem to be too much to worry about, at least according to historical reactions.

Editor's Note: See more stock market analysis at SentimenTrader.


Lasting through April 15, 100% of the donations made to The Ruby Peck Foundation for Children's Education will be channeled to the children of Japan as they attempt to find their footing following this natural disaster; and to kick off this drive, we'll pledge $5000 to get it started. Please do what you can, as it will add up, and thanks.
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No positions in stocks mentioned.

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