A government shutdown isn’t necessarily bad for the stock market

Scott Gamm
·Reporter

The stock market doesn’t care about about a government shutdown.

Just look at the data.

The market barely flinched after a fiery exchange Tuesday between President Donald Trump, Senator Chuck Schumer (D-NY) and Rep. Nancy Pelosi (D-CA), in which Trump promised to shutdown the government if the wall along the U.S.-Mexico border doesn’t get financed.

And historical data backs up the minimal market reaction from past government shutdowns.

During the last five government shutdowns (two in 2018, one in 2013 and two in 1995), the S&P 500 (^GSPC) rose during all of them.

For all of the government shutdowns since 1976 (there have been 20), the S&P 500 rose for half of them, according to data from LPL Financial.

While there were two brief shutdowns in 2018, the more notable one occurred for three weeks in October 2013, typically a volatile month for the stock market. The S&P 500 rose 3.1% from Oct. 1 to Oct. 17, 2013 — the duration of the shutdown.

“Government shutdowns are temporary and don’t really affect overall macro growth,” said Nick Colas, co-founder of DataTrek Research. “And they are common enough that markets have a track record to assess them as less important.”

After all, 2018 has already seen two brief government shutdowns -- in January and February.

A third one, at risk of beginning December 21, would push 2018 into uncharted territory in terms of government shutdowns.

S&5 500 performance during U.S. government shutdowns
S&5 500 performance during U.S. government shutdowns

“You have to go back to 1977 the last time we saw three shutdowns during the same year,” said Ryan Detrick, senior investment strategist at LPL Financial.

Here’s how the market performed during each of the three government shutdowns in 1977, according to LPL Financial:

  • 9/30/77-10/13/77 - S&P 500 fell 3.2%

  • 10/31/77- 11/9/77 - S&P 500 gained 0.7%

  • 11/30/77-12/9/77 - S&P 500 fell 1.2%

While the playbook for three shutdowns in one year is bit less sanguine, experts stress that international trade issues are a bigger concern for the markets.

“Right now, the market cares most about the outcome of the US-China trade negotiations, and all other news is secondary,” said JJ Kinahan, chief market strategist at TD Ameritrade. “Though the implications of a potential government shutdown may weigh on the minds of some investors, the most pressing issue is whether we can get any clarity on the direction of the tariff talks.”

Kinahan expects the uncertainty surrounding trade to keep the stock market in a holding pattern.

The S&P 500 is up 0.4% since the start of the year.

Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.

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