Why Stocks May Not Care If The Government Shuts Down

There have been 19 shutdowns since 1976. I’ve analyzed U.S. stock market returns for 19 periods, each beginning a week before the shutdown and ending a week after. During these periods, stocks achieved a return of about 1.51%. That works out to an average return of about 0.2% per day, which is well above average.Stocks were up 10 times and down 9 times during the shutdown periods, as I defined them. I included the week preceding because rumors of a pending event often affect the market. I included the week after to take into account the quick snap-back that often occurs when a budget crisis is resolved.I like my methodology, but if you prefer to know what happens only during the actual days the government is put to sleep, others have already calculated that. One study of 18 shutdowns by LPL Financial found an average decline of 0.6% Conclusion: Investors won’t leap for joy if last-minute budget negotiations fail, but they won’t dissolve in tears either. That last point brings back a strong personal memory for me. In 1995, during what proved to be a 23-day shutdown, my fiancé (now wife) and I planned to take a trip to London.With government offices shut down, she couldn’t renew her passport. We decided to go to Santa Fe, New Mexico, instead. While there, we wanted to visit a famous national park. Unfortunately, the national parks were closed. We didn’t know if we would ever be back in Santa Fe, so we decided to engage in mild civil disobedience and go there anyway. We were about a mile into the park when a park ranger (apparently one of the few not furloughed) approached us on skis and arrested us.