Government Shutdowns and Stock Market Reaction (1980-2015)
Government Shutdowns and Stock Market Reaction (1980-2015)
There has been ongoing discussion over the impact of “Government Shutdowns” (funding gaps) on the stock market. It’s important to note that funding gaps did not “shut down” the government in-whole or in-part prior to 1980. After 1980, legal interpretations lead to a shutdown of “non-essential” entities in the event of a funding gap. The following table lists the dates of each funding gap since 1980.
| Year of Funding Gap | Start Date | Total Days of Partial Shutdown |
|---|---|---|
| 1981 |
November 20 |
2 |
|
1982 |
September 20 | 1 |
| 1982 | December 17 | 3 |
| 1983 | November 10 | 3 |
| 1984 | September 10 | 2 |
| 1984 | October 3 | 1 |
| 1986 | October 16 | 1 |
| 1987 | December 18 | 1 |
| 1990 | October 5 | 5 |
| 1995 | November 13 | 5 |
| 1995-96 | December 15 | 21 |
| 2013 | September 30 | 16 |
The following table shows the stock market performance1 one year following the start date of a partial shutdown.
| Start Date of Partial Shutdown | Stock Market Return (One Year Later) |
|---|---|
| November 20, 1981 | 12.36% |
|
September 30, 1982 |
36.60% |
| December 17, 1982 | 17.93% |
| November 10, 1983 | 0.67% |
| September 30, 1984 | 10.84% |
| October 3, 1984 | 12.98% |
| October 16, 1986 | 18.02% |
| December 18, 1987 | 14.73% |
| October 5, 1990 | 25.97% |
| November 13, 1995 | 23.53% |
| December 15, 1995 | 20.94% |
| September 30, 2013 | 18.14% |
As you can see from the table above, a partial government shutdown has not shown to have severe consequences for the stock market. With all studies, information has to be placed in the proper perspective. This information is not to be used to guide future investment decisions. What has happened in the past may differ from future events. If we want to be informed, however, let’s be informed accurately and not be misled into believing something that hasn’t been demonstrated to occur.
As we head into the fall it is likely to hear more and more chatter about a government shutdown. It is also likely that any opportunity to link a market decline with this potential event will be taken. Investors beware, headline madness ensues!
If you have a financial plan that utilizes a balanced and diversified investment strategy as the funding medium, don’t be persuaded to abandon your plan by current events. The capital markets have demonstrated the ability to weather storms for those who choose to ride it out.
-Rick O'Dell
