Government Shutdowns and Your Investments: What History Tells Us
- Holzberg Wealth Management
- 1 hour ago
- 7 min read
HWM Market Recap - October 2025
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From time to time, headlines about a government shutdown dominate the news cycle, raising understandable questions about how it might affect the economy and financial markets. With the current impasse in Washington now entering its third week, many are wondering how long it will continue and what it could mean for the economy and investors.
The current government shutdown is among the five longest on record, and it remains unclear when lawmakers will reach an agreement. Congress must either pass a new funding bill or approve a temporary measure to reopen the government. Unfortunately, shutdowns have become a recurring feature of Washington’s budget process, as political divisions have made compromise more difficult in recent years.
What Happens When the Government Shuts Down?
A government shutdown occurs when Congress fails to agree on a budget or stopgap funding measure, halting the flow of money to certain federal agencies. When this happens, many “nonessential” services temporarily close, and hundreds of thousands of government employees are either furloughed or required to work without pay until funding resumes.
Essential services, such as Social Security, Medicare, and air traffic control, continue to operate, but many administrative offices, national parks, and museums are affected. In addition, government data releases, such as employment reports and inflation updates, are often delayed, creating short-term uncertainty for economists and investors.
The personal toll on federal workers and their families is significant. Missed paychecks, uncertainty about when work will resume, and disruption to family routines can create real hardship. While we want to be clear about that reality, it is also important to understand that, historically, the economic and market impacts of shutdowns have been relatively short-lived.
The Economic Impact: Limited but Real
Extended shutdowns can create modest headwinds for economic growth as federal employees postpone spending and certain government services experience disruption. However, when the government reopens, much of that activity tends to recover.
Perhaps the most notable aspect of the current situation is the increase in government layoffs, known as “reductions in force,” or RIFs. The job market has already shown signs of softening since the spring, leading to moderate concerns about the risk of recession. Without minimizing the real challenges this creates for affected families, it is helpful to keep the broader picture in mind: federal government employment accounts for only about 1.8% of the total U.S. workforce. The roughly 4,000 RIF notices recently issued represent about 0.1% of the federal workforce, or 0.0018% of the overall labor market.
In other words, while the impact on those individuals and families is deeply significant, the scale relative to the overall economy remains limited. That distinction helps explain why markets have tended to stay resilient through past shutdowns.
How Markets Have Responded Historically
Looking back, markets have shown an ability to look past government shutdowns. Since 1981, there have been eleven shutdowns, four of which lasted at least five days. In three of those four, the U.S. stock market ended higher by the time the shutdown concluded, and it was essentially flat in the other.
Growth of Wealth for the Fama/French Total US Market Index During Government Shutdowns Lasting at Least Five Days, Since 1981
Fama/French Total US Market Research Index: Fama/French Total US Market Research Factor + One-Month US Treasury Bills. Source: Kenneth R. French—Data Library (dartmouth.edu). Results shown during periods prior to each index’s inception date do not represent actual returns of the respective index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP. Chart created by Dimensional Fund Advisors.
Even the longest shutdown in U.S. history (from late 2018 through early 2019) did not derail market performance. Despite the political turmoil and headlines at the time, the S&P 500 rose 31.5% with dividends over the course of 2019.
While past results do not guarantee future outcomes, history suggests that the market’s focus remains on long-term fundamentals rather than short-term political gridlock.
Why Markets Tend to Look Past Shutdowns
Markets are forward-looking by nature. Investors respond most to long-term factors that drive business performance – things like corporate earnings, interest rates, and inflation trends – rather than temporary disruptions to government operations. Shutdowns generally do not alter those underlying fundamentals.
It is also worth distinguishing shutdowns from debt-ceiling debates. The debt ceiling determines whether the United States can continue to pay its existing obligations, which has more direct implications for Treasury markets and investor confidence. Shutdowns, on the other hand, are primarily about funding day-to-day government activities and are primarily logistical and political in nature.
That doesn’t mean markets are indifferent. Short-term volatility often ticks up when Washington gridlock dominates the news, but historically, those moves have been modest and fleeting.
Putting It in Perspective for Investors
Periods of political uncertainty can create discomfort for investors, particularly when headlines are filled with speculation and strong opinions. However, history shows that disciplined, long-term investors have been rewarded for maintaining perspective during times like these.
Consider the following points:
Short-term market movements are unpredictable. Markets may dip on uncertainty or rebound quickly once an agreement is reached, but those moves are difficult to time.
Long-term fundamentals remain intact. Corporate earnings, interest rates, and global economic trends are far more important to long-term returns than temporary political events.
Your plan is built for resilience. A well-structured investment strategy accounts for the fact that uncertainty is part of investing. The goal is not to avoid every period of turbulence but to remain positioned for long-term success through them.
If you are personally affected by the shutdown – either through furlough, delayed income, or changes to your household finances – it may make sense to review your short-term cash flow and emergency reserves. For most long-term investors, however, the best course of action remains patience, diversification, and adherence to your financial plan.
The Bottom Line
Government shutdowns are disruptive, both for the individuals whose livelihoods are directly affected and for the policymakers trying to resolve them. Yet, when viewed through the lens of long-term investing, their impact on markets has historically been limited.
While the path to reopening may take time, the key drivers of market performance (business profitability, inflation, and interest rates) remain far more influential to long-term outcomes. Maintaining perspective, focusing on what can be controlled, and staying aligned with a well-designed plan have consistently served investors well through similar periods in the past.
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Interest Rates: The Federal Open Market Committee (FOMC) will meet later this month for its October meeting.
Inflation: Due to the government shutdown, the release of the September Consumer Price Index (CPI) report has been delayed.
Housing: According to the National Association of Realtors, existing home sales decreased 0.2% month-over-month in August and increased 1.8% from one year ago. The median existing-home sales price rose 2% from August 2024 to $422,600. Data for September sales of new single-family homes will be released later this month.
Mortgage Rates: As of October 9th, 2025, the weekly average for a 30-year fixed-rate mortgage is 6.3%, slightly below the 52-week average of 6.71% and down 0.02% from a year ago.
Employment: Due to the government shutdown, the release of the September Bureau of Labor Statistics' Employment Situation Summary has been delayed.
Consumer Sentiment: The University of Michigan's Surveys of Consumers fell back 0.02% in October. Compared to its reading from one year prior, consumer sentiment is down 22%. Year-ahead inflation expectations went from 4.7% in September to 4.6% in October. Long-run inflation expectations held steady at 3.7%.
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About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and nationwide with the financial decision-making process to organize, grow, and protect your assets.
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Any charts and graphs provided are hypothetical and for illustrative purposes only, are not indicative of any investment, and assume reinvestment of income and no transaction costs or taxes.