Market on Pause: 5 ETFs to Watch as the U.S. Government Shutdown Sparks Volatility

As the 2025 U.S. government shutdown stretches into another week, investors are bracing for ripple effects across equity, bond, and sector-specific markets. While trading remains open, the disruption in federal operations, delayed data releases, and policy uncertainty are already shaping fund flows — and ETFs sit right in the middle of it all.

Here’s what’s driving the volatility — and five ETFs worth watching as the situation unfolds.

Why This Shutdown Matters More Than Usual

When Washington hits a funding wall, hundreds of thousands of federal employees are furloughed, and nonessential agencies go dark. But this time, the shutdown lands amid fragile investor sentiment, slowing growth, and upcoming Federal Reserve policy decisions.

For ETF investors, the effects are both direct and indirect:

- Delayed SEC operations could stall new ETF launches and approvals.

- Interrupted economic data may distort inflation and employment readings, clouding market outlooks.

- Sector-specific risks hit industries tied to federal functions — from defense contractors to air travel.

Historically, shutdowns haven’t derailed the broader market, but volatility spikes and sector rotations often follow.

5 ETFs to Keep on Your Radar

JETS – U.S. Global Jets ETF

The airline-focused JETS ETF tracks carriers and airport operators like Delta, United, and Southwest. With air traffic control staffing and FAA operations disrupted, the shutdown poses logistical risks that could hurt flight volumes and airline profitability. JETS tends to move quickly with travel sentiment — and this time, turbulence looks real.

AWAY – Amplify Travel Tech ETF

AWAY captures digital travel platforms such as Booking Holdings, Airbnb, and Expedia. While less directly hit by staffing furloughs, this ETF mirrors consumer confidence. Prolonged government gridlock and delayed paychecks for federal workers could suppress travel demand and online booking activity — a headwind for this tech-heavy fund.

TLT – iShares 20+ Year Treasury Bond ETF

As the shutdown amplifies uncertainty about economic growth, investors have been rotating into long-term Treasuries. The TLT ETF, which tracks bonds with maturities over 20 years, often acts as a safe-haven play.

But if the standoff triggers a credit downgrade scare or a delayed debt-ceiling debate, yields could spike instead — turning TLT’s defensive role into a double-edged sword.

XLV – Health Care Select Sector SPDR Fund

Healthcare stocks are traditionally resilient, but regulatory and reimbursement delays could weigh on sentiment. XLV, a bellwether ETF covering giants like UnitedHealth and Pfizer, may serve as a stability anchor if broader volatility rises — yet parts of the sector tied to government programs (Medicare, Medicaid) could see near-term pressure.

PSCC – Invesco S&P SmallCap Consumer Discretionary ETF

For smaller retailers and leisure companies, the shutdown’s impact on consumer confidence and spending could be direct. PSCC’s small-cap exposure makes it more sensitive to dips in sentiment, as households delay nonessential purchases. Watch this fund for clues on how the Main Street economy absorbs Washington’s dysfunction.

What Investors Should Watch Next

- Duration risk: A short shutdown may barely dent GDP, but a prolonged one could ripple through earnings and sentiment.

- Data blackout: Missing inflation, jobs, or retail reports could heighten volatility as traders fly blind.

- Sector divergence: Defensive ETFs (healthcare, staples, utilities) may outperform, while travel and discretionary names lag.

- Liquidity and regulation: While ETF trading remains smooth, the SEC’s limited staffing could slow approvals for new funds or structural changes.

The Bottom Line: Stay Grounded in Fundamentals

Government shutdowns make headlines — but for long-term ETF investors, discipline and diversification remain key.

While sector ETFs like JETS, AWAY, or PSCC could experience sharp swings, broad-market and Treasury ETFs may help cushion volatility.

As always, focus on your investment horizon and risk tolerance, not the daily political noise.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Market conditions can change rapidly during a shutdown. Always verify information independently and consult a licensed financial advisor before making investment decisions.