Despite facing multiple hurdles this year, the U.S. stock market has now navigated through the longest government shutdown in history. Since the shutdown began on October 1, the S&P 500 has risen 0.6% over 40 days, followed by a sharp rally on Monday as the shutdown appeared close to ending. Historical trends suggest the benchmark index could continue climbing ahead of the holiday season.
Data compiled by CFRA Chief Investment Strategist Sam Stovall shows that in the month following the conclusion of the past 15 government shutdowns, the S&P 500 averaged a 2.3% gain. Such a rise would push the index toward 7,000 by mid-December.
The latest deadlock in Washington may end as early as Wednesday (November 12), after Senate Democrats agreed to a full vote on a deal still requiring House approval. Investors welcomed the easing of tensions, speculating that widespread damage to the U.S. economy and corporate profits had been avoided. Attention now shifts back to monetary policy—with the Federal Reserve expected to cut rates for a third consecutive time next month—and the impact of tariffs on inflation.
During the shutdown, U.S. stocks managed gains despite volatility. The S&P 500 plunged 2.4% in the week ending October 10 after President Trump reignited trade tensions with China. Last week, the index fell 1.6% as AI-related trades appeared frothy. Still, strong corporate earnings drove a 4% rally over three weeks.
According to CFRA, the S&P 500’s 2.2% rise since the shutdown began outperforms the average market performance during pre-1981 shutdowns. Stovall noted that after last week’s pullback, further corrections may now be "delayed" as the shutdown concludes. "History suggests stocks rise one month after a shutdown ends," he said.
Strategists believe the market will climb further as government workers return and economic data resumes, reducing uncertainty. Even without key reports, stocks edged higher. Notably, some of the market’s biggest winners saw declines, presenting opportunities for bargain hunters. The "Magnificent Seven" tech giants alone account for roughly a quarter of the S&P 500’s weight.
Dennis DeBusschere, President and Co-Founder of 22V Research LLC, said, "The tail risk from the shutdown may be fading, and the recent dip in AI-related stocks is worth watching." He recommends going long on AI beneficiaries like Nvidia and Constellation Energy while shorting non-AI stocks.
Other sectors poised to benefit include government contractors like CACI International and Palantir. Nathan Mayer, Co-Chief Investment Strategist at Manulife Investment Management, noted that investors can now reassess economic data, but "there’s catching up to do in releases for a clearer economic picture."
Matt Miskin, Co-Chief Investment Strategist at Wanli Fuda Investment Management, added that fiscal stimulus expectations are reviving the reflation trade, reversing recent valuation declines.
However, the shutdown’s end isn’t universally positive. The lack of inflation and labor market data allowed investors to overlook threats to the Fed’s dual mandate. "It’s a two-way risk," said Keith Lerner of Truist Advisory Services, warning that surprise data could swing markets.
The Senate’s compromise omitted Affordable Care Act subsidy extensions, a partisan flashpoint, causing insurers like Centene and Molina Healthcare to tumble Monday. While funding extensions may be discussed, nothing is guaranteed.
Other headwinds remain, including high valuations, consumer health concerns, and sector-specific pain in healthcare. Still, many Wall Street strategists expect gains as government spending clarity provides marginal sentiment relief. "This offers some comfort to investors," Stovall concluded.
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