What the Government Shutdown Means for Clients

Sorry, we’re closing up shop early tonight.

The federal government officially shut down yesterday after lawmakers failed to agree on a spending bill. While history shows shutdowns usually create short-term volatility, rather than lasting damage, advisors will need to make sure they’re holding clients’ hands through the turmoil. And, for many clients already shaken by tariffs, geopolitical conflicts and AI disruptions in the broader labor market, the news only added to a year of remarkable uncertainty. 

“The most important thing is for clients not to lose their heads and overreact to what will likely be a short-term shutdown,” said Michael Arone, chief investment strategist at State Street.

Keep Your Head Up

The good news is that shutdowns aren’t usually a major blow to markets and the overall economy. Over the previous 21 shutdowns, 11 saw positive market changes, nine experienced market declines, and in one case, the shutdown was resolved before markets even opened, according to Vanguard data:

• From December 2018 to January 2019, the government shut down for 35 days, the longest period on record, and the S&P 500 actually rose 9.3% in that time.
• The biggest decline occurred in 1979, when an 11-day shutdown caused the index to drop 4.4%, according to the data.

So far, market reactions have mirrored past shutdowns, Arone said. However, if furloughed government employees are fully laid off, then that would be a real departure from the norm, he added. 

Big Data. One immediate effect is data delays. Friday’s September jobs report, a key indicator for Fed policy, has been postponed. But Arone noted the Fed can rely on alternative sources like the ADP and JOLTS reports, which both came out this week. “The Fed is always very careful to suggest that a single data point isn’t how they respond,” he said.

And, despite April’s sharp market dip following President Trump’s Liberation Day tariff announcements, major indexes are up this year, with the Nasdaq gaining nearly 20%. Arone said the shutdown isn’t likely to derail that. “The foundation for the bull market remains solid,” he told Advisor Upside, citing fiscal stimulus from the One Big Beautiful Bill Act, Fed rate cuts and healthy earnings. “It’s rare for the US economy to enter a recession if corporate profits are growing, especially by double digits.” 

Try Not to Panic. Advisors make financial plans to withstand market downturns, but headlines about a government shutdown can absolutely rattle clients’ confidence, said Omen Quelvog, founder of Formynder Wealth Manager. 

“I find it reassuring to preemptively send a note or short video to my clients letting them know that we’ve built their portfolios with the appropriate amount of risk to tolerate these kinds of events,” he told Advisor Upside.