Rational Reaction: Government Shutdown

Background

As of September 29, 2025, the federal government is headed toward its first shutdown in nearly seven years unless Congress reaches a funding agreement by midnight on Tuesday, September 30. The impasse centers around a disagreement between Republicans and Democrats over a continuing resolution to fund the government through November 21, 2025.

Republicans propose extending current funding levels with their continuing resolution, while Democrats are demanding healthcare provisions. After a White House meeting between President Trump and congressional leaders on September 29, no agreement was reached, with Vice President Vance stating the country is "headed to a shutdown".

Historical Context: Shutdowns Aren't Rare

Government shutdowns have become increasingly common since the modern budget process was established in 1976. Over the past five decades, there have been 21 federal shutdowns lasting an average of 8 days. The longest shutdown in U.S. history occurred from December 22, 2018, to January 25, 2019, lasting 35 days and affecting 800,000 federal workers.

Market Impact

Historically, government shutdowns have had minimal lasting impact on financial markets. Research from Bank of America shows no discernible pattern in stock behavior following shutdowns. The S&P 500 has shown mixed performance during these events, with outcomes largely dependent on underlying economic conditions rather than the shutdowns themselves.

Market Impact (cont.)

During the 2018-2019 shutdown, markets RELATIVE TO SHUTDOWNS initially declined but ultimately posted positive returns for the period, suggesting investors eventually focused on economic fundamentals rather than temporary political disruptions. 

Prolonged government shutdowns have historically lifted prices for long-dated Treasuries, as investors seek safe-haven assets during periods of political uncertainty. Treasury bills remain secure during shutdowns, as the government's ability to pay its debts is unaffected (essential debt service operations continue even when other functions halt).

Economic Data Disruptions

One of the most significant concerns for financial markets is the potential delay in crucial economic data releases. The Bureau of Labor Statistics has announced it will "suspend all operations" during a shutdown, meaning:

• The September jobs report scheduled for Friday, October 3, may be delayed.

• Weekly jobless claims reports would be suspended.

• The Consumer Price Index (CPI) report scheduled for October 15 could be postponed.

Economic Data Disruptions (cont.)

This data blackout is particularly concerning given the Federal Reserve's October 28-29 policy meeting, where officials rely heavily on employment and inflation data to make interest rate decisions. Markets are currently anticipating a quarter-point rate cut, making the employment data especially critical.

Economic Impacts

Economic research suggests government shutdowns typically reduce GDP by 0.1 to 0.2 percentage points for each week they persist. The 2018-2019 shutdown cost the economy an estimated $11 billion, with $3 billion in permanent losses according to the Congressional Budget Office. However, these impacts are generally modest and temporary.

The U.S. dollar often experiences initial weakness during shutdown announcements due to political uncertainty, though its reserve currency status typically limits prolonged declines. Government bonds may benefit from safe-haven demand, particularly longer-term Treasuries.

Historical data shows government shutdowns significantly impact consumer confidence, with declines of 8-10 index points during previous shutdowns. However, confidence typically rebounds once shutdowns end, and the impact comes primarily from expectations rather than present conditions, limiting the effect on actual consumer spending.

Shutdowns themselves don't directly cause inflation, but the lack of economic data can create uncertainty for Federal Reserve policymakers. Without key employment and inflation reports, the Fed may be more likely to stick with current economic forecasts, potentially affecting the timing and magnitude of interest rate adjustments.

Bottom Line

Government shutdowns often create political drama and market headlines, but their direct impact is usually limited and temporary. The 2025 shutdown, if it occurs, will likely echo past patterns: brief market volatility, delayed data, and a quick return to normal once resolved.

What matters more for investors is the broader backdrop: signs of a cooling labor market, ongoing inflation pressures, and heightened political uncertainty. In this context, the shutdown is best viewed as a distraction rather than a defining economic event.

Ultimately, successful investing means keeping focus on long-term fundamentals instead of short-term noise. History shows that shutdowns, despite their theatrics, have consistently been more noise than signal for financial markets

Important Disclosures

This commentary is produced by Helios Quantitative Research LLC (“Helios”) and is for informational purposes only. Helios Quantitative Research LLC (“Helios”) is associated with, and under the supervision of, Clear Creek Financial Management, LLC (“Clear Creek”), a Registered Investment Advisor. Helios provides research services to financial advisors who have executed a written agreement with Clear Creek or its representatives.

PlanWiser Financial, nor any of its members, are tax accountants or legal attorneys, and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional. Tax services are offered independently through PlanWiser Tax. This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. Investment advisory services offered through PlanWiser Financial, LLC, a Registered Investment Adviser.

Risks and Disclosures

This document is for general information and educational purposes only and must not be considered investment advice or a recommendation that the reader is to engage in, or refrain from taking, a particular investment-related course of action. Any such advice or recommendation must be tailored to your situation and objectives. You should consult all available information, investment, legal, tax, and accounting professionals, before making or executing any investment strategy. You must exercise your own independent judgment when making any investment decision.

All information contained in this document is provided “as is,” without any representations or warranties of any kind. We disclaim all express and implied warranties including those with respect to accuracy, completeness, timeliness, or fitness for a particular purpose. We assume no responsibility for any losses, whether direct, indirect, special, or consequential, which arise out of the use of this article. All investments involve risk, including loss of principal.

The research, analysis, and views contained in this document may be obtained from a variety of sources and may be subject to change without notice. We disclaim any and all liability for such data, including without limitation, any express or implied representations or warranties for information or errors contained in, or omissions from, the information. We shall not be liable for any loss or liability suffered by you resulting from the provision to you of such data or your use or reliance in any way thereon.

Any presentation of back-tested performance are hypothetical, were compiled after the end of the period advertised, and do not represent decisions made by Helios during the period described. Advisory services are only offered to clients or prospective clients where Clear Creek and its representatives are properly licensed or exempt from licensure.

© 2025 Helios Quantitative Research LLC. All rights reserved