It appears the federal government is shutting down today, October 1, as Congress has failed to agree on funding legislation for the upcoming federal fiscal year. If the shutdown occurs, it will be the first one since 2019 and the 21st since 1976.
Here are eight things to know about government shutdowns:
1. What Is a Government Shutdown?
A government shutdown occurs when Congress fails to pass funding legislation for the upcoming federal fiscal year. Congress is required to pass 12 appropriation bills that need to be signed into law by the president to continue funding the government. There are 12 appropriation sub-committees, each responsible for one bill.
If any of the 12 appropriation bills do not pass, then the government shuts down — effectively the federal government must stop all non-essential functions until funding is approved by Congress and signed into law.
2. What is a Continuing Resolution (CR)?
A CR temporarily funds the government in the absence of appropriation bills being passed, typically continuing funding levels from the year before. Historically, CRs were utilized to give lawmakers a short period of time to complete their appropriation bills while preventing the government from shutting down.
Congress has used CRs to fund the government in recent years, with the entire 2011 fiscal year funded through multiple CRs. Ahead of the current shutdown deadline, the Republicans unsuccessfully tried to pass a clean seven-week CR to allow more time for negotiations.
3. How Many Times Has the Government Shutdown Before?
Since 1976, there have been 21 government shutdowns, with the most recent one occurring in late 2018 and early 2019. Historically, government shutdowns have lasted for a short amount of time. On average, shutdowns have lasted eight days, with the longest spanning 34 days from December 22, 2018, to January 25, 2019.
The most recent shutdown was only a partial shutdown, as almost half of the 12 appropriations were previously enacted. There have only been four “true” shutdowns in which operations were affected for more than one business day.
4. What Services Are Affected in a Shutdown?
Essential services — mainly those tied to public safety — continue to operate, with payments covering any obligations incurred only when appropriations are made. Historically, border protection, in-hospital medical care, air traffic control, law enforcement, and power grid maintenance have continued to operate, as they are deemed “essential” services. In this case, tariff collections will also continue.
5. Does a Government Shutdown Save Money?
The answer is no, unfortunately. Federal workers are guaranteed back pay, so even though the workers are forced to be idle during a shutdown, they do get back pay when things reopen. In addition, there is a cost to the economy, as some businesses may forgo hiring and investment decisions because those firms can’t get federal permits or access to federal business loans.
6. How Does a Government Shutdown Differ From a Default?
In a government shutdown, the federal government temporarily stops paying workers who perform some type of government service. In contrast, a default occurs when the government exceeds the statutory debt limit and is unable to pay its creditors. When a government is unable to pay its bills, markets understandably get extremely nervous. Don’t worry, we’re a very long way from that. Payments for Social Security, Medicare, and Medicaid, which are mandatory, will continue uninterrupted during the shutdown.
7. How Has the Stock Market Responded to Government Shutdowns?
Historically, markets were not materially impacted by a shutdown. For example, in 2013, the House and Senate were in a standoff over funding for the so-called Affordable Care Act and the government was shut down for 16 days during the first part of October. The had some down days, but overall, the equity market took all the political drama in stride with a 3.1% advance during those 16 days, as illustrated in the “Stock Market Performance During Government Shutdowns” chart.
On average, the S&P 500 has historically been about flat during shutdowns, with a slightly higher probability of gains vs. losses since 1976. Considering that most of the losses came during the late 1970s, and the biggest decline during a shutdown since 1980 was 2.2%, history suggests stocks have a good chance of going higher during this shutdown, though past performance does not guarantee future results.
Stock Market Performance During Government Shutdowns
Source: LPL Research, Bloomberg, Strategas Research 09/30/25
Disclosures: All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.
8. Do Government Shutdowns Affect the Treasury Market?
The cornerstone of fixed income markets — U.S. Treasuries — are generally not impacted by a shutdown, but there could be tangential impacts. The U.S. Treasury Department still makes its coupon payments during a shutdown and has consistently conducted debt auctions as these operations are classified as essential to maintaining the government’s creditworthiness and ability to meet its obligations. Shutdowns primarily affect non-essential discretionary spending, but borrowing activities proceed under contingency plans.
Historically, a government shutdown hasn’t generally been very eventful for the bond market. If anything, it could provide a little short-term relief since Treasuries usually rally when uncertainty rises. During the last three government shutdowns, were generally lower, on average, by 0.05%.
For the 2013 shutdown specifically, which some policy strategists believe is comparable to the current episode, the 10-year yield was lower by 0.02%.
In the past, the three major rating agencies (Moody’s, Fitch, and S&P) have noted that a government shutdown would reflect negatively on the U.S. government bond rating. All three major rating firms have already downgraded the U.S. credit rating below their top tier in recent years due to fiscal and political issues, pretty much taking this outcome off the table.
Finally, Treasury operations have continued without cancellation during past shutdowns. The department’s contingency plans ensure minimal staffing for debt issuance, and the Federal Reserve Bank of New York facilitates the process. Market effects are typically short-lived, but Treasury demand often serves as a haven, sometimes lowering long-term yields post-resolution. No shutdown has ever halted new debt issuance, as it would risk default on interest payments — a scenario Congress has always avoided.
Conclusion
There you have it. Eight things to know about government shutdowns. Though each case is different, investors should be reassured by the fast resolutions of these shutdowns, the continuation of mandatory services, and the likely marginal effects on the economy, stock, and bond markets.
If there is one common theme across these shutdowns over the past five decades, it’s that voters expressing their dissatisfaction with politicians is a common and lasting theme. So, if you are affected, or even if you are not and are just dissatisfied with the continued dysfunction in Washington, contact your representative. More squeaky wheels might help speed up the oil delivery.