{"id":201071,"date":"2024-01-12T10:45:14","date_gmt":"2024-01-12T15:45:14","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=201071"},"modified":"2024-01-15T05:00:14","modified_gmt":"2024-01-15T10:00:14","slug":"what-investors-need-to-know-about-government-shutdowns-2","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/what-investors-need-to-know-about-government-shutdowns-2\/","title":{"rendered":"What Investors need to know about Government Shutdowns"},"content":{"rendered":"\n

Key takeaways<\/h2>\n\n\n\n

January 19 deadline<\/h3>\n\n\n\n

If Congress doesn’t pass spending bills by the deadline, parts of the government may shut down.<\/p>\n\n\n\n

Limited market impact?<\/h3>\n\n\n\n

Past shutdowns, but not all, led to market volatility, which tended to resolve quickly with minimal to no impact.<\/p>\n\n\n\n

Think long-term<\/h3>\n\n\n\n

Don\u2019t let any short-term market volatility from a government shutdown impact your long-term investing plan.<\/p>\n\n\n\n

It\u2019s a new year, and new US government shutdown deadlines are already on the horizon. Some agencies are facing a funding deadline of January 19, and others face a deadline of February 2. While a prolonged period of policy uncertainty typically increases market volatility, past shutdowns have tended to be resolved quickly with minimal to no impact on markets. That\u2019s why it makes sense to stick to a long-term investment plan. Here are three things for investors to keep in mind about government shutdowns.<\/p>\n\n\n\n

1. Shutdowns are relatively common and tend to resolve quickly<\/h2>\n\n\n\n

There have been 21 government shutdowns in US history according to the US Treasury. They\u2019ve been resolved, on average, within eight days. <\/sup>Five only lasted a day. The longest lasted 34 days.1<\/a><\/sup><\/p>\n\n\n\n

2. Volatility increased in some, but not all, past shutdowns<\/h2>\n\n\n\n

Market volatility often results from policy uncertainty. While there are examples of heightened volatility, for the most part, it\u2019s been generally benign during past government shutdowns.<\/p>\n\n\n\n

\"Not<\/figure>\n\n\n\n

3. Stocks, on average, advanced despite shutdowns<\/h2>\n\n\n\n

While the S&P 500 Index, on average, churned in the days leading up to and during government shutdowns, it advanced in the aftermath.2<\/a><\/sup> The Index also posted positive returns during 12 of the 21 government shutdowns. The average return during the shutdowns is 0.1%.3<\/a><\/sup> (Remember, shutdowns have been resolved, on average, within eight days.) Plus, despite experiencing 21 government shutdowns along the way, a $100,000 investment in the S&P 500 Index in 1957 would be worth $8.3 million today.4<\/a><\/sup><\/p>\n\n\n\n

Stick to long-term investing plans<\/h2>\n\n\n\n

While unnerving, concerns about shutdowns shouldn\u2019t change investors\u2019 long-term investment plans. This isn\u2019t the first government shutdown, and it\u2019s likely not the last. Ultimately, I\u2019d expect the spending bills to pass without incident. As Winston Churchill may have said, \u201cAmericans always do the right thing, but only after exhausting all other options.\u201d<\/p>\n\n\n\n

Footnotes<\/h3>\n\n\n\n