Market Snapshot: Stuck in Government Shutdown Mode

The U.S. federal government shutdown has entered its second week, yet financial markets have largely taken the event in stride. Since the October 1 funding lapse, the S&P 500 is down roughly 2% (mostly due to unrelated tariff headlines), while the 10-year Treasury yield has edged down about 10 basis points, signaling limited concern about the political gridlock in Washington, at least for now.

Historically, such composure has been warranted. Of the 20 shutdowns or funding gaps since 1976, most were short-lived; 11 of those lasted just 5 days or fewer and their economic footprints were negligible. Even when some federal employees missed paychecks, household spending held up thanks to the tendency to smooth consumption rather than react sharply to temporary income disruptions.

The 2018–2019 episode stands as the notable exception. Spanning 34 days, it shaved an estimated 0.3% off U.S. GDP across the two quarters it covered, according to the Congressional Budget Office.² The lesson there was that when “temporary” shocks persist, households eventually adjust behavior, turning a political standoff into a modest economic drag.

This time, the scope of the shutdown appears broader than in many prior cases, encompassing multiple agencies. While still manageable, it likely poses a mild headwind, perhaps on the order of 0.1% of GDP for each week it continues. Prediction markets currently view mid-October as the likeliest endpoint, as lawmakers may potentially be motivated by the political sensitivity of the October 15 active-duty military pay date.

Even so, the broader economic backdrop remains favorable. Growth is running above trend, aided by momentum in capital expenditures, stimulus from The One Big Beautiful Bill Act, and a recent shift toward easier Federal Reserve policy. Against that backdrop, a short-term fiscal interruption is unlikely to derail the expansion or trigger a recession.

The more immediate challenge may be informational rather than economic. The shutdown has halted key government data releases, including the September jobs report and possibly the upcoming Consumer Price Index (CPI) release. That creates a temporary blind spot for investors and policymakers alike.

Fortunately, alternative indicators help fill the void. The Conference Board’s Employment Trends Index and its survey data on job availability provide a close real-time proxy for the unemployment rate. Similarly, purchasing managers’ indexes (PMIs), particularly the “prices paid” and “prices received” components, offer a window into near-term inflation pressures. A PMI-based model suggests the September CPI report, once released, could show a modest reacceleration in prices with the annual run rate of inflation jumping from to 3.2% from 2.9% in the prior month. This is not completely unexpected, particularly as companies continue to work through existing pre-tariff inventories and become increasingly likely to pass on their higher costs to end consumers.

In short, while the shutdown complicates economic monitoring, it is far from leaving investors in the dark. A robust ecosystem of private data streams continue to provide meaningful visibility into growth and inflation trends, insight that will be especially valuable to the Federal Reserve as it weighs its next steps on policy.

Jason Pride, CFA

Chief of Investment Strategy & Research
Glenmede

Michael Reynolds, CFA

Vice President, Investment Strategy
Glenmede