Government Shutdowns, Markets, and the Power of Planning

I’d been debating what to cover in this quarter’s market update for clients, but when I woke up this morning Washington made the choice for me with the first government shut down in nearly seven years. Convenient for my writing schedule, less so for Congress.

To be clear, it’s not my role to opine on politics. There are people far more qualified than I to analyze the causes, implications, and motivations behind legislative gridlock. But it is my job to help clients make sense of headlines like these and understand how they may or may not impact their financial goals. I can’t predict the future, but I can share perspective from the past, and more importantly, highlight what we can control no matter what comes next.

Looking at the Data

The data isn’t gospel, but it always is helpful.

Shutdowns as we know them, where agencies actually close and workers are furloughed, didn’t begin until the early 1980s. Before that, the government would often keep running despite funding gaps, expecting Congress to catch up. It wasn’t until a pair of legal opinions in 1980 and 1981 that agencies were forced to stop operations.

Since 1981, the U.S. government has experienced 14 funding gaps, 10 of which resulted in actual shutdowns. Most of these lasted just a few days. Only four dragged on longer than five.

Exhibit 1.

A History of U.S. Government Shutdowns

Source: Courtesy of Dimensional Fund Advisors and the US House of Representative: History, Art & Archives.

During those longer episodes that lasted more than 5 days,  what did the market do in those shutdown days? U.S. stocks rose in three of the four cases and were flat in the other.

Exhibit 2. Market returns during prolonged government shutdowns

Period returns of the Fama/French Total US Market Research Index during shutdowns of 5 or more days.

Source: Courtesy of Dimensional Fund Advisors. Past performance is no guarantee of future results.

If we want to look at more than just the short-term returns during the shut down we can zoom out and see what the US stock market did in subsequent years from the first month following the shutdown and beyond.

Exhibit 3. Historical returns after government shutdowns

Periodic performance of Russell 3000 Index starting the beginning of first month after shut down end.

Source: DFA Returns Web Database. Starting first month after shut down end. Past performance is no guarantee of future results.

This doesn’t mean markets are immune. But it does suggest that shutdowns, while disruptive in the headlines, have rarely been material to long-term returns, and they’re almost never the thing that causes lasting market stress. By the time you read this, the current shutdown may already be resolved. Or it may not. Either way, markets are likely already pricing in both the disruption and whatever comes next.

As opposed to trying to bet on the future, stick with what you can control.

Why This Headline Feels Heavy

So, if the data shows shutdowns aren’t necessarily a catalyst for market disruption, why does this story carry so much weight?

In short, it hits differently. Most headlines, earnings announcements, Fed meetings, inflation prints, GDP releases come and go and often don't creep up on us.  They affect sentiment, but they don't always strike at the core of how we view the system itself. A government shutdown, on the other hand, brings something else: the visible breakdown of function. Federal workers going unpaid, agencies closing, parks shuttered. It’s a reminder that even systems we consider foundational can seize up.

That makes this kind of event feel existential in a way that other stories don’t. It’s not just fear about portfolios. It’s fear about stability. And that’s why it can provoke a stronger emotional response, especially among retirees or near-retirees watching it unfold and thinking about their own budget.

The Planning Lens

This is exactly where planning shows its value.

I’m not Pollyanna and don’t claim to be Nostradamus when it comes to predicting the future. I don’t know what comes next politically, and I don’t try to outguess the next move in the market. What I do is help clients build a plan that can hold up when headlines feel shaky.

That starts with matching cash flow needs to the right investments. For clients in retirement or approaching it, that means having the appropriate amount of safer, less volatile assets (short-term bonds, intermediate bonds, TIPS) that provide stability when markets get rocky.

It continues with international diversification, not because we are betting against the US, but because we don’t know what market will lead next week, year, or decade.

It ends with planning for flexibility in the controbalbe: spending guardrails, thoughtful withdrawal strategies, tax loss harvesting, rebalancing opportunities and tax planning.

This is why I often say planning matters more than investing. The plan drives the portfolio, not the other way around. It ensures that your outcomes don't depend on whether Congress is “continuing to work on a resolution”.

Perspective Over Panic

None of this is to say that people shouldn’t be concerned. Shutdowns are disruptive. If your traveling soon, expect longer waits at TSA. And like any sign of dysfunction, it can shake confidence.

But we don’t build financial plans based on the assumption that everything will go right. We build them so that when things go sideways, you can make adjustments and don't have to second guess whether you made the right "bet".

Markets don’t like uncertainty. But they are very good at absorbing it. Over time, they’ve shown a remarkable ability to climb walls of worry, including plenty of shutdowns, debt ceilings, and partisan standoffs. The key is not reacting to every headline, but staying grounded in what actually drives long-term outcomes.

In the end, that’s what matters most. Markets keep working. Compounding keeps working. And your plan should stay open for business, even when Congress doesn’t.

About the Author

Carson McLean, CFP® is the founder of Altruist Wealth Management, a flat-fee, fiduciary advisory firm serving clients virtually across the country. With over 15 years of experience in the investment and financial planning industry—including a background at Dimensional Fund Advisors—Carson helps clients navigate retirement transitions, tax planning, portfolio strategy, and cash flow management with clarity and transparency. He believes great advice starts with real planning, not product sales or opaque fee structures.

Disclosure:

This material is provided for informational and educational purposes only and should not be construed as investment, tax, or legal advice. The opinions expressed are those of the author and may change as market or other conditions evolve. All investing involves risk, including the potential loss of principal. Past performance is not indicative of future results.

Altruist Wealth Management (“AWM”) is a registered investment adviser offering advisory services in states where registered or exempt from registration. Registration does not imply any particular level of skill or training. For more information, please visit www.altruistwm.com