The U.S. government partially shut down again on December 22, 2018, when Congress could not agree on a funding deal to keep it open. The sticking point was President Trump's insistence that a funding bill include $5 billion to build a border wall between the U.S. and Mexico. Congressional Democrats refused. The week leading into the shutdown was a brutal one for stocks as the Nasdaq fell into a bear market and the DJIA and S&P 500 are deep into a correction. The threat of a shutdown did not necessarily cause the markets to fall, but given recent volatility, it did not help.
Some 400,000 federal workers are without pay until a resolution is reached. Several, but not all government services are closed, including parts of the IRS and the SEC. Other financial regulatory services remain open so there will be no impact to securities trading and market operations. The military remains open due to a resolution passed earlier in the year.
How Do Government Shutdowns Affect the Stock Market?
The last government shutdown occurred on Jan. 20, 2018, when Congress failed to pass a bill funding the government through Feb. 16. The market saw the shutdown coming – the predictable result of an impasse over immigration policy – and on Friday the S&P 500 rose by around 0.4%.
Hold on a second. Rose? As it turns out the stock market doesn't get too bothered by federal shutdowns. When the market opened to a still-shuttered government on Monday, Jan. 22 morning, the market rose 0.8%. The market's rise had less to do with reports that Congress would temporarily fund the government (a bill was signed later that evening), and more to do with upbeat earnings reports.
Shutdown so-what-ism isn't anything new. LPL Financial crunched the numbers for the previous 18 shutdowns, spanning the period from 1976 to 2013, and found that the median change in the S&P 500 over the course of a shutdown was 0.0%. Nothing. Utter apathy. The mean was -0.6%.
Don't get the impression that budget shenanigans don't matter at all, though. Following a bitter fight over the debt ceiling in 2011, S&P downgraded U.S. sovereign debt as a rebuke to a gridlocked Congress with no apparent willingness to reign in the deficit. The S&P dropped 6.7% the following trading day.