Government Shutdown Impact on Your Wallet: Understanding the Effects on the Stock Market

A looming government shutdown could impact the stock market, with equity markets tending to falter and bond yields decreasing. Some traders may slow activity, but dips in performance are typically not dramatic. The S&P 500 Index ($SPX) rallied 10% during the last full shutdown in 2018-19. Companies relying on federal contracts, like Lockheed Martin (LMT) and General Dynamics (GD), may face delayed payments or project slowdowns, but their share prices tend to bounce back quickly.

The potential government shutdown, scheduled for October 1, has sparked concerns among investors and financial professionals. Lawmakers from both parties are warning of a shutdown due to stark differences over policy, with each side blaming the other for the impasse. This political standoff could have significant implications for the stock market, with equity markets potentially faltering and bond yields decreasing.

The S&P 500 Index ($SPX) rallied 10% during the last full shutdown in 2018-19, suggesting that while there may be temporary dips in performance, the overall impact is usually not dramatic. Companies heavily reliant on federal contracts, such as Lockheed Martin (LMT) and General Dynamics (GD), may face delayed payments or project slowdowns during a shutdown. However, their share prices tend to bounce back quickly once the shutdown is resolved.

The ongoing debate over government spending has been exacerbated by a federal appeals court's decision to overturn President Donald Trump's tariffs. This ruling could create a $4 trillion hole in Trump's budget over the next decade. Trump has also antagonized fellow Republicans by refusing to spend billions of dollars already approved by Congress.

Senate Democratic leader Chuck Schumer has urged his colleagues to prevent Republicans from helping Trump's move toward authoritarianism. Meanwhile, Mike Marinella, a spokesperson for the National Republican Congressional Committee, accused Democrats of threatening chaos to protect their extremist agenda.

The potential shutdown comes after a Labor Day weekend of protests organized by unions and community activists against the Trump administration. The rallies aimed to demonstrate the power of the working class in cities including Boston, Chicago, Detroit, and New York.

Investors are advised to monitor the situation closely, as ongoing threats from trade and tariff unknowns, as well as potential economic releases, could ultimately challenge elevated stock valuations. While the immediate impact may not be dramatic, the long-term effects of a government shutdown could be significant.

References:
[1] https://www.usatoday.com/story/news/politics/2025/09/02/congress-potential-government-shutdown/85936596007/
[2] https://www.ameriprise.com/financial-news-research/insights/take-weaker-september-seasonality-with-grain-of-salt