Matthew C Klein, Columnist

Markets Just Don’t Care About Government Shutdowns

Price changes in the S&P 500 stock index around the dates of past federal government shutdowns suggest that traders donât care about them.

September 30, 2013 at 5:09 PM UTC

By Matthew C Klein

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange. Before that, Klein was a research associate at the Council on Foreign Relations, where he spent more than two years studying the history of the Federal Reserve and the intellectual history of monetary economics for an upcoming book by Sebastian Mallaby. He also worked at Bridgewater Associates, where he studied the economies of Central and Eastern Europe and advised institutional investors on asset-liability management. Klein has a bachelor's degree in history from Yale University. Originally from Chicago, he lives in New York.

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Almost all the world's major stock indexes are down today -- the Dow is off by 126 points as I write this -- and the cause seems pretty obvious: The U.S. government is on the verge of shutting down for the first time since Bill Clinton made Newt Gingrich sit in the back of a plane 17 years ago. Indeed, investors have been skittish for a while: U.S. equity values are down about 2.6 percent since Sept. 19, while 5-year inflation expectations have dropped by more than 0.1 percentage points.

Yet if it is the shutdown that has everyone spooked -- and not the far larger threat posed by a failure to lift the debt ceiling -- then things should calm down in a hurry. A quick check of the performance of the S&P 500 stock index during previous shutdowns suggests suggests that equity prices might actually benefit from a brief suspension of federal government activities.