How Does the Market React to Government Shutdowns?

Written By: Ryan Rinehart

Just five months ago we were discussing the possibility of a government shutdown, and unfortunately here we are again, facing another partial shutdown. When shutdowns are looming, it’s no surprise that this raises concerns for investors when it comes to the stock market. So today I wanted to look back on how the stock market has responded to shutdowns in the past. 

I’ll start with the worst part of how government shutdowns have affected the markets, and that’s the lead up to the actual shutdowns. Analyst show that leading up to the past shutdowns that lasted 10 days or more, the S&P 500 saw a dip of a median of 10.2%. That’s obviously a significant drop, but now lets talk about the good news. 

For one, markets often bounce back once politicians resolve their differences and reopen the government. In fact, in the 12 months following such shutdowns, the S&P 500 has seen a median gain of 18.9%. Also, during the shutdown periods themselves, stocks have been up 50% of the time according to data from Truist. 

So like most situations when it comes to investing, the key is sticking to the plan you have in place and not making any major changes over short term dips in the market. Too often the news of a shutdown causes investors to panic, which results in them not being in the market when we see the 18.9% gain following the shutdowns. Situations like this are we use the Financial House, and make sure to have a solid foundation in your investment strategy. 

If you have questions about your investment strategy, or any of the 5i’s in your retirement plan, do not hesitate to reach out to us! 

Say What?

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This week in history

1765 – The Stamp Act was imposed on American colonies by the British government. It levied a tax on all materials printed for commercial and legal use in the colonies, impacting everything from newspapers and pamphlets to playing cards and dice. After realizing how much it cost to try to enforce the Act in the protesting colonies, the tax was repealed the following year.

1893 – The first women’s college basketball game was played at Smith College in Massachusetts. The spectators were all female as well, as men were not allowed in the gym at the all-women college. 

1989 – The Exxon Valdez crashes, causing one of the worst oil spills in history.

What did it cost? (Standard Car Tire)

1974 – $26.30 each

2004 – $100.20 each

2024 – $185.46 each

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