Fisher Investments Reviews Debt Ceiling Deadlines and Government Shutdowns

Government Shutdowns in Context

It is uncertain whether a government shutdown will occur in the coming weeks. Congress ultimately wields the authority to allocate federal funds, and lawmakers commonly use debt ceiling negotiations to further their own legislative agendas. When lawmakers cannot agree on a budget, this feared “shutdown” scenario forces non-essential government operations to temporarily halt. These operations can include the National Park Service, the U.S. Securities and Exchange Commission (SEC)—the agency that regulates the securities market—and other civil services.

Some investors may worry about the consequences of a shutdown, but the market impact has historically been muted. Since 1976, there have been 21 shutdowns or funding gaps—periods when a spending bill elapsed but was resolved quickly enough to avoid a shutdown.ⁱ During these periods, US stocks still rose by an average of 7.6% and 12% over the next 6 and 12 months, respectively, as shown in Exhibit 1.

Exhibit 1: Government Shutdowns Don’t Knock Stocks

Source: FactSet, as of 2/19/2025. S&P 500 Price Index returns, 9/30/1976 – 1/25/2020.

In our view, stocks typically do just fine around government shutdowns because shutdowns don’t eliminate all economic activity associated with government spending—most of it simply gets delayed. For example, while we recognize the human impact of temporary job losses, federal employees typically receive back pay once new funding is approved—so shutdowns have a minimal effect on consumer spending as well.

We can see this clearly in US GDP (Gross Domestic Product) reports. Out of the 15 quarters impacted by a government shutdown since 1980, only two showed contraction.ⁱⁱ In both cases, the contraction began a quarter before the shutdown occurred. Even the 26-day government shutdown from 1995 to 1996 didn’t knock economic growth.

Uncertainty induced by congressional grandstanding over a fiscal deadline may initially affect stock prices. However, in our view, investors needn’t worry. Stock prices quickly reflect all widely-known information and often look beyond temporary factors.

Is Congress Flirting with Default?

When government shutdowns occur, some investors extrapolate the potential consequences and worry the US government might default on its debt obligations if it reaches—or exceeds—the debt ceiling. However, failing to pay a supplier on time or even cutting select entitlement payments doesn’t constitute a default. A default only happens if the government fails to make principal or interest payments on its debt—which we believe remains highly unlikely.

The U.S. is well-equipped to meet its debt obligations. For instance, even after the debt ceiling is reached, the Treasury can issue new debt to refinance maturing bonds, ensuring principal repayments continue smoothly. While interest payments present a slightly bigger challenge, Exhibit 2 shows monthly tax receipts are more than sufficient to cover the government’s interest obligations.

Exhibit 2: Federal Revenues Far Exceed Debt Interest Payments

Source: FactSet as of 3/5/2025. US Treasury, Federal Budget Receipt and Interest on Treasury Debt from 1/31/2023 - 12/31/2024.

Some argue that default risk still exists, believing the government might choose not to prioritize interest payments over other projects. However, this could be unconstitutional and the Supreme Court's interpretation of the 14th Amendment's public debt clause requires the government to prioritize bond repayments above all other obligations.ⁱⁱⁱ

We don’t deny a default would have severe consequences globally, but the actual risk of default is negligible, in our view. For long-term investors, we believe the best approach is to treat this political theater the way stocks do—calmly weigh the probabilities and move on.

Want to Dig Deeper?

In this article, we took a closer look at the national debt limit. For more on this perennial topic, you can watch Ken’s recent video, “Fisher Investments’ Founder, Ken Fisher, Discusses Debt Ceiling Fears”.

To learn more about the national debt and why it isn’t the $35-trillion-problem many believe, read Fisher Investments founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher’s recent New York Post column, “How I learned to stop worrying about the national debt – even though it’s $35 trillion.”

For more market insights from Fisher Investments, read our latest articles.

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. The results for individual portfolios and for different periods may vary depending on market conditions and the composition of the portfolio. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.

ⁱ Source: FactSet, as of 9/23/2021. S&P 500 price returns, 9/30/1975 – 1/25/2020.

ⁱⁱ Source: Congressional Research Service and St. Louis Federal Reserve, as of 12/14/2018. Shutdowns were combined in some quarters to show total days closed. *Before 1980, shutdowns were less complete, with some agencies staying open on the presumption Congress didn’t intend for them to close. Reinterpretation of the Antideficiency Act changed that.

ⁱⁱⁱ Source: Congress.gov, as of 2/28/2025, URL: https://constitution.congress.gov/browse/essay/amdt14-S4-1/ALDE_00000849/.