What a Government Shutdown Could Mean for Your Portfolio

A standoff over federal spending between the Trump administration and congressional Democrats has brought the risk of a shutdown to a critical point. Here’s what to know about budget negotiations and what it could mean for your investment portfolio.

What is the deadline to avoid a government shutdown?

The deadline to avoid a government shutdown is midnight on Tuesday, September 30, 2025.

How did we get here?

Congress must pass new appropriations bills or a temporary funding measure (known as a continuing resolution) to prevent a funding lapse for the 2026 fiscal year, which begins on October 1. But negotiations between Republicans and Democrats have stalled, leaving no clear path ahead of the deadline.

Why are Democrats and Republicans at a standstill?

Democrats and Republicans are locked in a high-stakes budget battle over the total amount of discretionary spending for the 2026 fiscal year—about one-quarter of the government’s $7 trillion budget.

On September 19, the House Republicans passed a stopgap bill to fund the government through November 21. Senate Democrats rejected it, however, demanding that any legislation undo recent cuts to health care programs. Each side is currently blaming the other for the potential funding lapse. “We'll probably have a shutdown,” Trump said during a press conference in Oval Office on Tuesday.

A number of partisan issues are fueling the impasse:

• Affordable Care Act (ACA) subsidies: Democrats are pushing to extend enhanced ACA tax credits that are set to expire at the end of 2025. Republicans argue this is a separate policy issue that should not be tied to the current funding measure.
• Medicaid cuts: Democrats are attempting to reverse cuts to the Medicaid program that were included in a larger spending bill passed by Republicans earlier in the summer.
• Allocation of funds: The Democratic proposal seeks stricter limits on the Trump administration’s ability to reallocate or freeze federal spending approved by Congress.

As Congressional leaders struggle to reach a resolution, hundreds of thousands of workers risk being furloughed and some government services will be impacted as federal agencies ready their contingency plans. The Department of War (previously the Department of Defense) released a document over the weekend stating that roughly 335,000 of the department's 741,477 civilian workers would be furloughed in the event of a shutdown.

Are government shutdowns common?

While government shutdowns are not common, we have had many over the past half century. There have been 21 partial or full government shutdowns in the U.S. since 1976. The length of the shutdowns has varied from a few hours to up to 34 days in the shutdown that began Dec. 21, 2018, and lasted until Jan. 25, 2019.

What impact will a shutdown have on the economy?

The economic impact of a government shutdown is dependent on many things, including the length of the shutdown and whether it is a full or partial suspension of services. During the 2018–19 partial shutdown, when the Federal government employed nearly 2.2 million workers, roughly 800,000 were furloughed or continued working while their pay was suspended. During that shutdown, the CBO estimated that the 2018–19 shutdown reduced GDP by about 0.2 percent. This time, however, the Trump administration has directed federal agencies to prepare for the potential of “reductions in force,” to permanently scale back the size of the federal workforce if a shutdown occurs. This differs from a standard shutdown, in which most workers are furloughed.

While it is difficult to calculate the impact of a potential shutdown today, one widely quoted estimate pegs the effect at about 0.2 percentage points for each week the shutdown lasts.

How will a shutdown affect me as an investor?

A shutdown could affect financial markets by limiting the operations of financial regulators and delaying the publication of key economic data. It will likely also cause temporary market volatility as political and economic uncertainty weighs on investor sentiment. History shows us that the market will likely recover in the long term, however.

Of the 20 shutdowns since 1976, investors fully recovered from losses within one year after government activity resumed 85 percent of the time with an average return of 12.6 percent. In fact, as shown in the table below, the S&P 500 posted positive returns during half of the shutdowns.

Is there anything I should do to prepare?

The uncertain nature of the outcome of negotiations coupled with the historically muted and short-lived impact on the economy and markets underscore why we believe it can be risky to make wholesale changes to your investment plan based on expectations of how things may play out.

While no financial plan can predict the specifics of every bump along the way, a Northwestern Mutual financial advisor can develop a plan that accounts for the unknown—whether from a government shutdown or some other challenge that has yet to be identified.

A financial plan with investments alone is more susceptible to the economy’s twists and turns. But a plan in which your investment strategy is reinforced with a range of financial options built for your life and priorities, like permanent life insurance for protection and annuities for guaranteed income in retirement, can give you more options, more flexibility and more confidence.

The opinions expressed are those of Northwestern Mutual as of the date stated on this material and are subject to change. There is no guarantee that the forecasts made will come to pass. No investment strategy can guarantee a profit or protect against loss. Past performance is no guarantee of future results. This material does not constitute investment advice and is not intended as an endorsement of any investment or security. Information and opinions are derived from proprietary and non-proprietary sources. To learn more, click here.

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