Please ensure Javascript is enabled for purposes of website accessibility

The Government Shutdown: What It Means for Investors

The Government Shutdown: What It Means for Investors

 

What Happened?
 

At 12:01 a.m. today, the government shut down. Republicans and Democrats in Congress could not pass appropriation bills for the next fiscal year. This deadline rolls around every year on October 1, and this time there was no approval of a stopgap funding bill or continuing resolution to keep the government operating. With a 53-seat majority, Republicans failed to get the required 60 votes needed to extend current funding levels as Democrats sought to include, among other items, Affordable Care Act subsidies set to expire at year end.
 

Consequences

This is the fourth shutdown of the federal government in the past 10 years and the sixth since 1995. In terms of impacted individuals, non-essential federal employees will be furloughed, while essential workers must continue working without pay.
 

Economic data collected and released by the federal government may be delayed, including Friday’s important monthly jobs report. This could affect the Federal Reserve’s decision-making process as it takes employment and inflation updates into close consideration. 
 

Our view

Historically, government shutdowns have had little impact on the U.S. economy because only a small portion of the U.S. economy actually shuts down, with much of the lost economic output eventually recouped. Gross domestic product has been positive in each of the last six shutdowns. 
 

Stemming from the recent tax and spending legislation, payments to companies for investment in capital goods and research and development are now taking effect as well. These payments are helping to mitigate the tariff impact and should provide some cushion to the initial drag of the shutdown.
 

Also, shutdowns are usually short-lived, lasting an average of eight days since the 1970s. More recent shutdowns have averaged about two weeks, except for one that lasted 35 days from late 2018 into early 2019. In that case, 75% of the government was still financed. 
 

Research suggests stocks are not significantly impacted by government shutdowns. Since 1977, data shows an even split between gains and losses during these events, with the S&P 500 flat on average. One month after the end of a shutdown, however, the S&P 500 has gained 1.2% on average and 2.6% after three months.
 

Stay the Course

 

We advise investors to look past the current political environment and stay the course. We will continue to closely monitor developments in Washington, D.C., but we believe investors should instead focus on market fundamentals such as earnings and the path of monetary policy. Third quarter earnings are expected to be robust, increasing to 7.8% year over year, up from 7.1% at the end of June. Though economic data may be delayed, the Fed is poised to continue its easing cycle. Both factors should continue to support equities. 

 

RELATED CONTENT
2025 Mid-Year Outlook
Webcast  |  Investments

Listen to a replay of our Mid-Year Outlook webcast during which Chief Investment Officer Sinead Colton Grant and a team of investment experts share our mid-year outlook and explore a range of topics including trade and tax policy, geopolitics and where we see investment opportunities across public and private markets.

From The Analyst’s Desk: Policy Sparks Sector Benefits
Article  |  Investments

The One Big Beautiful Bill Act is affecting multiple sectors across the S&P 500 with its pro-growth provisions. Some industries face tailwinds while others are not expected to gain as much. Learn which sectors we believe are poised to benefit the most.

Navigating the Crypto Landscape
Article  |  Investments

Cryptocurrency has evolved from a small-scale experiment into a multi-trillion-dollar global market. This article dives into the market’s history, adoption, innovations and regulations.

Monthly Spotlight: Constructive on Equities
Video  |  Investments

Labor market weakness has solidified expectations for the Federal Reserve to cut rates. Meanwhile, companies continue to deliver strong earnings growth, particularly in the technology sector. What does all this mean for equities moving forward?

Past performance is no guarantee of future results. This material is provided for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation.

 

The Bank of New York Mellon, DIFC Branch (the “Authorized Firm”) is communicating these materials on behalf of The Bank of New York Mellon. The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation. This material is intended for Professional Clients only and no other person should act upon it. The Authorized Firm is regulated by the Dubai Financial Services Authority and is located at Dubai International Financial Centre, The Exchange Building 5 North, Level 6, Room 601, P.O. Box 506723, Dubai, UAE.

 

The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the Federal Reserve and authorized by the Prudential Regulation Authority. The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. The Bank of New York Mellon is incorporated with limited liability in the State of New York, USA. Head Office: 240 Greenwich Street, New York, NY, 10286, USA.

 

In the U.K. a number of the services associated with BNY Wealth’s Family Office Services– International are provided through The Bank of New York Mellon, London Branch, One Canada Square, London, E14 5AL. The London Branch is registered in England and Wales with FC No. 005522 and BR000818.

 

Investment management services are administered by BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. Offshore trust and administration services are through BNY Trust Company (Cayman) Ltd.

 

This document is issued in the U.K. by The Bank of New York Mellon. In the United States the information provided within this document is for use by professional investors.

 

This material is a financial promotion in the UK and EMEA. This material, and the statements contained herein, are not an offer or solicitation to buy or sell any products (including financial products) or services or to participate in any particular strategy mentioned and should not be construed as such.

 

BNY Mellon Fund Services (Ireland) Limited is regulated by the Central Bank of Ireland BNY Mellon Investment Servicing (International) Limited is regulated by the Central Bank of Ireland.

 

Trademarks and logos belong to their respective owners.

 

BNY Wealth conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation. BNY is the corporate name of The Bank of New York Mellon Corporation and may be used to reference the corporation as a whole and/or its various subsidiaries generally.

 

©2025 The Bank of New York Mellon. All rights reserved.

WI-812189-2025-10-01

Let's start a conversation.

SUBSCRIBE