Even with a flurry of last-minute negotiations to avoid a U.S. government shutdown, no agreement was reached, and a partial shutdown began on Oct 1. Essential services will continue, including Social Security and Medicare payments as well as many others.
No one can know how long this partial shutdown will last or the full impact, which will likely grow in proportion to its length. The pain is greatest for furloughed government workers and those whose activities are tied to national parks and other government services. But most people will continue their daily routines without any disruption. And that's why we believe that the impact on the economy and the financial markets is likely to be small.
Small Market Impact of Past Shutdowns
While you might think shutting down the U.S. government, especially with all the associated uncertainty, would trigger a market decline, that hasn't always been the case:
• There have been 17 government shutdowns in the past, most recently in 1996.
•Stocks dropped during nine of them and rose during the other eight.
•After the shutdowns ended, the average stock market gain was 2.5% over the following three months and 13.3% over the following 12 months.*
That's one reason you should stay invested and consider any short-term decline as an opportunity to add quality investments at lower prices.