Governmental Shutdowns and the Market

After the third quarter of 2025, the federal government failed to reach an agreement on the national budget and its funding. To move forward, a spending bill must be passed by the Senate and signed by the President. However, ongoing disagreements between Republicans and Democrats — primarily over Medicaid spending and healthcare-related tax provisions — have prevented a resolution.

The previous federal budget expired on October 1, and as a result, many non-essential government employees have been placed on unpaid leave. Essential workers continue to perform their duties but will not receive pay until the government reopens. Several federal programs have been affected:

• SNAP benefits were initially scheduled to stop but have been extended through December 1 under an emergency order.

• National parks and museums are closed.

• Other federal services have been temporarily halted.

  
  

This is not the first time the U.S. government has faced a funding lapse. Since 1981, there have been 11 shutdowns, varying in length and scope (see accompanying chart from Dimensional Fund Advisors, “Stocks Can Still Go Up When the Government Shuts Down”).

Funding-gap and shutdown dates are sourced from the US House of Representatives: History, Art & Archives.

While these disruptions are disruptive for individuals and communities, investors naturally wonder whether the added uncertainty will weigh on the stock market. Historically, however, market reactions have often been more muted than expected. In several past shutdowns, stock prices actually rose during the period of government closure.

Past performance is not a guarantee of future results. Actual investment returns may be lower.

Data presented in the Growth of $1 chart is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The chart is for illustrative purposes only and is not indicative of any investment. The Fama/French indices represent academic concepts that may be used in portfolio construction and are not available for direct investment or for use as a benchmark. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. See “Index Description” for a description of the Fama/French index data.

As of October 31, 2025, the S&P 500 had gained 2.3% since the previous budget expired — a reminder that markets tend to focus more on long-term fundamentals than short-term political gridlock. Still, we hope policymakers will reach an agreement soon to reduce uncertainty and allow federal operations to resume as normal.