The United States has entered its first government shutdown in seven years and the third under President Donald Trump, after the Senate rejected the House’s funding bill. Several Senate Democrats opposed the measure because it excluded provisions such as extensions for Affordable Care Act subsidies, which are set to expire at the end of 2025.
With no agreement on the funding bills or a short-term continuing resolution (CR) to maintain operations, the US government has halted non-essential services. Federal offices and programs are now largely suspended until lawmakers reach a resolution.
The shutdown is especially concerning given the broader context: global growth is slowing, geopolitical risks are rising, and monetary conditions remain tight. In this environment, the added uncertainty from the government closure is intensifying market volatility.
Extended shutdowns could shake US markets
Markets often ignore brief shutdowns since they usually have minimal impact on corporate earnings. However, prolonged or repeated shutdowns can dent investor confidence and push money toward safe-haven assets.
Since 1950, the US has seen 21 shutdowns, most lasting only a few days. Length, however, matters. The 2018–2019 shutdown lasted 35 days—the longest in US history. During that period, the S&P 500 dropped 13%, while 10-year Treasury yields fell by 13 basis points in the 12 days leading up to the end of the shutdown.
Other factors also played a role in the sell-off. The Congressional Budget Office estimated that during the five-week 2018–2019 partial shutdown, the economy did not recover $3 billion of the $11 billion in lost output.
This year’s shutdown could have an even larger effect on equity markets due to deep political divisions, an economy exposed to external shocks, and recent policy changes that have already unsettled investors.
Government data freeze adds markets uncertainty
One often overlooked but important impact of a shutdown is the disruption of government data releases. Agencies may suspend publication of critical statistics such as jobs reports and inflation figures, which markets rely on heavily to forecast corporate earnings, interest rates, and currency valuations.
Without these data points, speculation tends to fill the gap, increasing the risk of mispricing and sudden market swings. Reliable data is essential for informed decisions, and its absence can affect central bank policy, corporate planning, and investor sentiment alike.
US shutdown could influence global investors
A shutdown could also shake confidence among international investors, prompting continued reallocation away from US assets. International investors have gradually reduced their exposure to US assets over recent years, and a prolonged political deadlock could accelerate this trend.
The disruption of federal agencies that collect key indicators, like the consumer price index (CPI), could affect both the TIPS market and the Federal Reserve’s policy decisions, adding another layer of uncertainty to global financial markets.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
