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Government Shutdown Doesn’t Mean Market Disaster: Keep Calm and Stick to Your Plan
Hoxton Blog • Government Shutdown Doesn’t Mean Market Disaster: Keep Calm and Stick to Your Plan
You’ve no doubt seen the news that the U.S. government has entered a shutdown.
It happened after senators failed to approve a last-minute funding measure, despite crisis talks at the White House earlier this week.
The Republican-led Senate did not pass a last-minute spending measure yesterday that could have prevented the shutdown.
Republicans pushed a “clean” continuing resolution – an extension of government funding without added policy provisions.
But with only 53 seats, they needed 60 votes to advance it, meaning Democratic backing was required.
The Democrats knew this and used that leverage to pursue health-care priorities, including keeping subsidies for low-income health-insurance coverage from expiring and undoing the Trump administration’s Medicaid cuts.
The deadlock sparked a blame game between the parties, and the shutdown will continue until Congress passes a funding measure.
Reports in the media suggest that hundreds of thousands of federal workers who are considered “not essential” for protecting people or property could be furloughed or laid off after the shutdown began at midnight U.S. time.
Shutdown Shockwaves: Futures Edge Lower
On the face of it, the news looks like doom and gloom.
Both Asian stocks and U.S. equity futures have slipped – with Nasdaq and S&P 500 futures down about 0.4%. And a prolonged shutdown is likely to exert greater pressure as the week progresses. The dollar also fell for the fourth day in a row on the news.
In simple terms: early trading can be jumpy, so small headlines can cause outsized moves.
“Safer” areas of the market like utilities, consumer staples, and parts of healthcare often hold up better, while more economically sensitive areas like small caps, travel, and some commodity-linked names can wobble.
When people get nervous, they often buy gold and high-quality government bonds.
Economists have suggested that, if the shutdown drags on, some investors may move money out of the U.S. into markets that look steadier or cheaper.
Within the U.S., investors may favour bigger companies with strong cash piles over firms that rely more on borrowing. Businesses that earn a lot of money overseas can also look relatively attractive if domestic data and government services are disrupted.
Bond markets – and expectations for Fed interest-rate decisions – are in limbo because key economic reports might be delayed, for example, Friday’s jobs report. When hard data is missing, markets end up guessing more, which adds to day-to-day swings.
People may also pay closer attention to how and when the government issues new debt. With earnings season coming up, companies might sound a bit more cautious until there’s a clear resolution in Washington.
Lessons From History: Hold Your Nerve
But the important thing is not to panic. We’ve seen it all before.
Since the modern budget process began, the U.S. has seen multiple funding gaps that led to full or partial government shutdowns.
Since 1976 there have been 22 shutdowns, but only four have lasted beyond a single business day, according to economists.
By that count, there have been just four “true” shutdowns.
The most recent, and longest to date, occurred in 2018-19, during the previous Trump era. The government shut down for 35 days between 22 December 2018 and 25 January 2019, off the back of disagreements over border wall funding.
History shows us that during these types of events, short-term volatility may increase, safe-haven assets such as gold can catch a bid and economic data delays add uncertainty.
But, in the long run, the stock market doesn’t really care about government disputes like this.
During the 2018-19 shutdown, although it faltered at first, the S&P 500 returned approximately 10.3%.
Tune Out the Noise, Trust the Plan
As always, it’s important not to be drawn into the hyped-up news mill.
Markets may wobble around the headlines and data delays, but broad indexes usually hold up – and 6–12 months later they’ve tended to be higher.
After shutdowns end, the S&P 500 has been up 12% on average over the following 12 months, and some studies show 12–13%.
That’s why sticking to your long-term plan matters most when headlines are loud.
A well-diversified portfolio, sized to your time horizon and risk tolerance, is built to absorb episodes like shutdowns without forcing you into costly, emotional decisions.
Instead of reacting to the news, lean on the discipline of your investment policy: continue your regular contributions, keep adequate cash for near-term needs and let compounding do its job.
If anything, you can use periods of volatility as a cue to rebalance – trimming what’s run hot and adding to areas that have lagged – so your allocation stays aligned with your goals.
Review, don’t react. Confirm your emergency fund is intact, ensure your plan still fits your objectives, and make adjustments only for life changes, not for a week’s worth of headlines.
At Hoxton Wealth, we’re here to help you turn today’s noise into a clear, actionable plan.
We’ll review your goals and risk tolerance, stress-test your portfolio against different shutdown/market scenarios and suggest practical steps – like disciplined rebalancing and tax-efficient adjustments – to keep you on track.
If you’d like to discuss your portfolio, review your long-term plan, or simply seek reassurance during uncertain times, reach out to our client services team at client.services@hoxtonwealth.com or through our global WhatsApp line at +44 7384 100200.
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