There’s a lot of handwringing over whether the government shutdown will hurt the stock market. If history is any guide, the answer is no.
There have been 17 government shutdowns—which the government prefers to call “funding shortfalls”—since the mid 1970s. There were six during Jimmy Carter’s presidency, eight during the Reagan years, one for George H.W. Bush, and Bill Clinton participated in two.
The shutdowns have never cost the stock market more than a few points, and in most cases the market actually went up.
Below is a list of all the shutdowns in the 30 years since Ronald Reagan became president. It includes the days the government was shutdown, what happened to the market during the shutdown, and where the market was one month after the beginning of the shutdown, just in case there was a lagging impact.
(Note: I have excluded Carter’s presidency because the stock market never moved much one way or the other due to his lousy economic policies. The Dow was at 959 the day Carter was inaugurated and 966 the day he left.)
Reagan Presidency:
Nov. 20-23, 1981 — The market fell one point from 853 to 852; one month out it was up to 873.
Sep. 30-Oct. 2, 1982 — The market rose from 896 to 903; one month out it was up to 991.
Dec. 17-21, 1982 — The market rose from 1,011 to 1,030; one month out it was up to 1,084.
Nov. 10-14, 1983 — The market rose from 1,236 to 1,254; one month out it was up to 1,260.
Sept. 30-Oct. 3, 1984 — The market fell from 1,206 to 1,182; but one month out it was up to 1,217.
Oct. 3-5, 1984 — This shutdown was an extension of the previous one, and the market remained the same, at 1,182.
Oct. 16-18, 1986 — The market fell from 1,836 to 1,811; but one month out it was up to 1,860.
Dec. 18-20, 1987 — The market rose from 1,975 to 1,990; one month out it was down to 1,963.
Bush (41) Presidency
Oct. 5-9, 1990 — The market fell from 2,511 to 2,446; but one month out, at 2,502, it had regained nearly all it had lost.
Clinton Presidency
Nov. 13-19, 1995 — The market was way up, from 4,872 to 4,983; and the following month the government shut down again.
Dec. 5, 1995, Jan. 6, 1996 — The market rose from 5,177 to 5,197; two months out (since this one took most of the month) the market was way up, to 5,407.
Out of the 11 shutdowns listed here, the market dropped by more than one point only three times. And only twice was the market lower one month later: once by 12 points and the other by seven.
Thus we can say that in the last 30 years, government shutdowns have had virtually no impact on the stock market.
But this time the budget battle isn’t the only struggle. There is also the issue of the federal debt ceiling, which could have a more profound impact on the market. The Dow was down about 185 points for the first full week of the shutdown. But that drop is more likely due to worries over the upcoming debt-ceiling fight than reaction to the shutdown.
During the last debt-ceiling crunch, in July and August of 2011, the Dow tanked, dropping from 12,681 on July 22 to 10,817 in less than a month. It didn’t reach its July 22 peak again until the end of January 2012.
House Speaker John Boehner may be tipping his hand that he understands these dynamics. He has been adamant that President Obama must compromise on ObamaCare, and perhaps other issues. But he has also just been as adamant that the federal government will not default on its debt.
There are a lot of reasons for Congress and the president to sit down and negotiate a resolution to the current budget standoff. But, if history repeats itself, fear of the market tanking over a shutdown isn’t one of them—though here we should include the standard disclaimer that past performance is no guarantee of future results.
Defunding, or at least defanging, ObamaCare and getting government spending under control are extremely important, and Republicans are right to take the president to task over his profligacy. But they should do it quickly; the debt-ceiling battle is coming soon.