Will a Prolonged Government Shutdowns Affect Portfolios?

Sean Gross, CFP®, AIF® | Co-Founder & CEO

October 6, 2025

As we look at markets and the economy, our goal is always to provide perspective for our clients. We understand that news headlines can send mixed messages, so we want to make sure you're informed of what is most important to your financial progress.

The government shutdown is at the forefront of the current news cycle and is now entering its third week. We expect these headlines to grow louder, adding to political noise and perhaps polarization. For investors, there are also growing concerns about a possible recession. To be clear, the goal of financial planning is not to take sides on which side of Washington is "right," but rather to make sense of it all, especially with an eye toward risks and opportunities.

Key Points to Consider:

• The current government shutdown is now in the top five longest shutdowns ever, primarily affecting government workers and their families, as well as those who depend on government services. By law, furloughed employees should receive all backpay once the shutdown ends.

• What makes this shutdown unique is that the federal government is pursuing layoffs, also referred to as "reductions in force" or RIFs. Without minimizing the impact on the lives of government workers and their families, the reality is that federal government employment only makes up 1.8% of the entire workforce. Recent reduction in force notices represent just 0.0018% of the total labor market, a small slice of the entire economy.

• Historically, government shutdowns have never had long-term effects on the stock market. The longest shutdown in history lasted 35 days during President Trump's first term from 2018 to early 2019. While the past is no guarantee of the future, the S&P 500 went on to gain 31.5% with dividends in 2019.

• Extended shutdowns can create modest economic growth headwinds as federal employees postpone spending and government services experience disruptions. However, much of this lost economic growth is simply postponed until the government reopens.

• The key drivers of investments, such as corporate earnings, valuations, interest rates, and inflation are unlikely to significantly shift because of the government shutdown. The shutdown is also distinct from the debt ceiling, which has led to credit downgrades in the past.

The chart below shows that historical government shutdowns have often had limited impact on markets, regardless of which party was in power.

Taken together, government shutdowns will likely attract media attention, present difficulties for federal employees, and interrupt essential services, but they historically represent temporary interruptions and have minimal financial market impact. Related to your situation, the government shutdown is not a reason to make changes to your financial plan. That said, if your financial situation or objectives have shifted, please don't hesitate to reach out and we'll explore it in detail together.