Senate Ends Government Shutdown

The 3-day old government shutdown ended this afternoon when the Senate overwhelmingly voted in favor of passing a stopgap bill to fund the government through February 8. After failing to secure the necessary votes on Friday due in large part to a stalemate over immigration issues, many Senators who previously opposed the bill agreed to vote in favor of it in exchange for assurances that the debate on immigration, as well as border security and other related issues, would resume in short order.

Major U.S. indexes appeared to react positively to the news, though investors had shown little concern last Friday as stocks rose despite reports of a steadily declining likelihood of the bill passing. Over the past 40 years, the government has shut down on 18 previous occasions, and these experiences have proven to be a non-event for the stock market as the S&P 500 Index has lost -0.6% on average during periods of closure. Focusing on more recent instances, the last three government shutdowns, which happened in 1995, 1996, and 2013, saw the S&P 500 gain +37.58%, +22.96%, and +32.39%, during those years, respectively.

However, as we move closer to spring, the need to extend the debt ceiling accelerates, and prolonged uncertainty could prove to weigh on investor sentiment. So what could this mean for the economy and markets? Per John Lynch, Chief Investment Strategist at LPL Financial, “Despite the threatening headlines, investors must keep in mind that government shutdowns, though high in drama, have historically had almost no effect on the economy or markets. And with strong fundamentals supporting further economic growth and business profitability, we would view any market pullbacks tied to the debt ceiling as potential buying opportunities for suitable investors.” As the next deadline quickly approaches and consensus will likely again be hard to achieve, look for additional insights and analysis from LPL Research.

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