When the U.S. government shut down on October 1st, many pundits predicted doom for the stock market. “Oh no, what will we do without the government?” they cried.
Well, the answer turned out to be: quite a lot.
Instead of panic, the market has climbed higher. In fact, this week the stock market hit new highs, right in the middle of the shutdown. What gives?
The reality is that the government isn’t the engine of our economy—the market is. When the federal government closes its doors, business continues. Workers show up. Goods are produced. Services are delivered. Consumers keep spending. The only place really feeling the pain is Washington, D.C.
Why the Market Likes Gridlock
The government is a mechanism that extracts resources from the most productive members of society—through taxation—and redistributes them to the least productive. When that mechanism isn’t functioning, the private sector gets to breathe.
Investors like that. The shutdown has reassured the market that Washington won’t interfere with the regular flow of business. Less government often means fewer new rules, less uncertainty, and more confidence.
Economically speaking, the U.S. economy doesn’t depend on government workers getting their paychecks. It depends on businesses and individuals making decisions, innovating, and trading freely.
Leaner Government, Stronger Market?
If President Donald Trump uses this moment to trim more government “fat,” it could be positive for the country. We’ve already seen cuts in agencies like the Department of Education, USAID, and the Corporation for Public Broadcasting—programs that consumed billions of tax dollars with little measurable return.
Reducing unnecessary bureaucracy can free up resources for more productive uses. The market seems to understand that.
A Word on Stocks and Shutdowns
When Trump was first elected, many of my friends panicked and wanted to sell their stocks. They feared the worst. Yet here we are: the S&P 500 is up 15%. That’s a strong return.
Past shutdowns have shown minimal long-term effect on the stock market or the broader economy. And Wall Street is betting this time won’t be much different.
Of course, risks remain. A prolonged shutdown could rattle consumer confidence, disrupt credit markets, or delay key economic data that traders rely on. But so far, the shutdown hasn’t stopped the market’s momentum.
So, What Could Stop It?
That’s the real question. If the government’s closure can’t derail the rally, what could? Rising interest rates, slowing global growth, or corporate earnings disappointments are more likely to move markets than political gridlock in Washington.
For now, though, the market has spoken: it doesn’t need the government to thrive.
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