This is the logo and if clicked redirect you to home page
Trending News
September 29, 2025 - Third Party

Shutdown or Not Shutdown?

US Government Shutdown: Real Threat or Opportunity for the Markets?

As the September 30, 2025 deadline quickly approaches, the specter of a US government shutdown once again haunts the markets. Budget disagreements between Democrats and Republicans suggest a legislative deadlock, likely to result in the temporary halt of non-essential federal government functions.

In a context where the global economy is already under strain—cyclical slowdown, high interest rates, and geopolitical uncertainties—the impact of a shutdown needs to be closely monitored. Yet, history shows that these episodes, though noisy, haven't always left a lasting mark on financial markets.

So, should we fear the worst? Or, on the contrary, prepare to seize investment opportunities?

What is a government shutdown?

A government shutdown occurs when the US Congress fails to pass a budget or a temporary funding bill (Continuing Resolution - CR) to finance federal agencies. This causes the halt or suspension of many public services.

Affected functions:

  • Closure of museums, national parks, administrative agencies (IRS, FAA, etc.)

  • Furlough of hundreds of thousands of federal employees

  • Suspension or delays of certain social benefits

  • Reduced workforce at the SEC, limiting market oversight

  • Blockage of major economic data releases

Shutdowns: A More Frequent Scenario

Since 1976, the United States has experienced 22 shutdowns. The longest was during the Trump administration, lasting 35 days between December 2018 and January 2019.

Historical evolution of shutdowns:

image_2025-09-29_132747154.png

Analysis of the Current Political Context

The current situation blends three explosive elements:

  • Republican majority in the House but divided between moderates and Trump loyalists
  • Democrats demanding renewal of Obamacare subsidies
  • White House threatening mass layoffs without approved funding

The Trump factor:

Donald Trump remains a blocking factor. By canceling a crucial meeting with the Democrats, he increased the risk of a budget stalemate.

Potential Economic Impacts of the Shutdown

Immediate Impact:

  • Frozen economic data:

    • Non-Farm Payrolls (employment)

    • Inflation (CPI)

    • Quarterly GDP

  • **Export paralysis**: no issuing of licenses

  • SBA loans and small business aid frozen

  • Delays in social payments, suspended medical tests

Market Consequences:

  • Increased volatility (VIX can rise from 14 to 25+)

  • Decrease in cyclical stocks

  • Reduced guidance from companies exposed to government contracts

What Does Historical Data Say?

According to MarketWatch:

  • S&P 500 -0.23% on average one week before the end of a shutdown

  • 0.06% over a month, but 60% of shutdowns end with a positive performance

  • 12-month return after a shutdown: positive in 19 out of 22 cases

Notable Example: 2013 Shutdown (Obama)

  • Duration: 16 days

  • Impact: S&P 500 +3.1% during the period

Markets Today Facing Shutdown Risks

Stock Indices:

  • S&P 500: near historic highs
  • Nasdaq: sensitive to macro data
  • Dow Jones: more defensive, could weather the storm

Risk Indicators:

  • VIX: around 14, dangerously compressed
  • Fear & Greed Index (CNN): neutral, sensitive to the slightest shock

What Strategies for Investors?

1. Take a Contrarian Approach: Buy the Panic

History shows that markets often rebound after shutdowns.

Example:
Temporary loss of 5% on the S&P 500 → Bounce of 8-10% over 6 months
€100,000 investment → Potential gain of €8,000

2. Focus on Defensive Stocks

  • Healthcare: Pfizer, UnitedHealth
  • Food: Coca-Cola, Nestlé
  • Utilities: NextEra, Enel

3. Gold and Long-Term Bonds as Safe Havens

  • Gold: the ultimate safe haven asset
  • Long-term bonds: falling yields = rising value

And What About the Fed?

Issues Caused by the Shutdown:

  • Lack of data for the next FOMC
  • Interest rate decisions more uncertain
  • Possible precautionary pause in rate hikes

Economists' Views:

"The probability of a shutdown is >70%, but the short-term impact should remain moderate." — Goldman Sachs

"The shutdown could delay a Fed tightening." — Morgan Stanley

Shutdown: A Test of US Political Credibility

Potential Impact on US Debt:

  • Risk of losing credibility
  • Rating agencies could downgrade the AAA rating
  • Increase in CDS (Credit Default Swaps)

Conclusion: Threat or Opportunity?

A government shutdown above all remains a political event. Its market impact is generally temporary but can trigger enough short-term noise to generate volatility.

The rational investor will see it as a buying opportunity, especially when fundamentals remain solid and historical performance is favorable.

**Go Further: Recommended Reading**

**FAQ – Government Shutdown and Financial Markets**

1. Will the government shutdown cause the stock market to crash?
Not necessarily. Historical data shows a moderate impact, except in the case of a parallel crisis.

2. Can you still receive social benefits during a shutdown?
Yes, but with possible delays in some payments.

3. Which economic data are affected?
Employment (NFP), inflation (CPI), GDP, consumer confidence. They may be suspended or delayed.

4. What is the average length of a shutdown?
Around 6 to 8 days. The longest lasted 35 days (Trump, 2018-2019).

5. Is this a good time to buy stocks?
Yes, historically shutdown-related selloffs have often been followed by strong rebounds.

Sylvain Mouilhaud

Back to the News