Dear Valued Investor,
The October 1 deadline has passed, and the U.S. government has shut down. While political gridlock is never ideal, history suggests that shutdowns tend to be short-lived and have minimal sustained impact on the
economy or the stock market. They are largely about political posturing and therefore don’t take long to get resolved. Simply put, delaying Social Security checks is not a winning political strategy, so it almost certainly
won’t happen (we can’t make guarantees, but this is close).
Republicans do need votes from Democrats, and we know there hasn’t been much nice playing in the sandbox in Washington, D.C. lately, introducing the possibility of an extended shutdown. Democrats are seeking
healthcare concessions, including reversing Medicaid cuts and extending Affordable Care Act subsidies. Meanwhile, the Republicans are threatening more public-sector layoffs in areas not aligned with the President’s priorities, as each side stakes out its position.
Investors have smartly looked past budget disruptions throughout history, rightly focusing on traditional fundamental drivers of the economy and stock market such as corporate earnings, consumer spending, business
investment, inflation, and interest rates. That said, sectors heavily reliant on government contracts — such as defense and life sciences — may experience some short-term volatility. An extended shutdown, which could delay key economic data releases, including the October 3 jobs report, could detract slightly from economic growth but is unlikely to be material, in our view.
Since 1976, the U.S. has experienced 20 shutdowns, averaging just eight days in duration. The longest, in 2018– 2019, lasted 34 days. Importantly, the S&P 500 has historically posted average gains of 1.2% and 2.9% in the one- and three-month periods following budget resolutions, underscoring the market’s resilience, though past performance does not guarantee future results. Even if investors ignore the government shutdown, a pause may be in order given how far stocks have come since April — even as more tariffs are absorbed.
While we see rising odds of a 5–10% pullback, risk to this bull market appears low thanks to a resilient economy, strong earnings, the resumption of the Fed’s rate-cutting cycle, and long-term catalysts like AI-driven
productivity gains and fiscal stimulus from the One Big Beautiful Bill Act (OBBBA). Against that backdrop, a pullback could offer an attractive buying opportunity.
In short, while near-term volatility is possible, or perhaps even likely, the broader outlook remains constructive. We encourage investors to emphasize stock market fundamentals over political theater and consider pullbacks as potential buying opportunities.
As always, please contact your financial advisor with questions.
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of October 1, 2025.
All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Past performance does not guarantee future results.
Asset allocation does not ensure a profit or protect against a loss.
This research material was prepared by LPL Financial, LLC.
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