MW Why investors don't need to play defense during the government shutdown - even if it lasts

By Tomi Kilgore

The cyclical consumer-discretionary and financial sectors performed best during the longest-ever shutdown, while the defensive utilities sector fell

Even if the government shutdown lasts a long time, history suggests investors don't need to move toward defense sectors.

For investors struggling to decide how to play the government shutdown - especially given all the uncertainty over how long it might last - history at least suggests what they shouldn't do is get too defensive.

Wall Street tends to brush off shutdowns, as they are usually short-lived. As Jeff Buchbinder, chief equity strategist for LPL Financial, pointed out, there have been 21 government shutdowns over the past 50 years, with an average duration of eight days. He noted that, on average, the S&P 500 SPX has traded roughly flat during shutdowns, with a slightly higher probability of gains.

Read: The U.S. government just shut down. Here's what it means for you and your money.

But what if the shutdown lasts a long time?

In that case, the longest shutdown in history, which occurred during the first Trump administration, may provide some guidance. Here's how the 11 SPDR S&P Select Sector ETFs performed during that shutdown, from Dec. 22, 2018 through Jan. 25, 2019.

The best performers were the Financial Select Sector SPDR ETF XLF and the Consumer Discretionary Select Sector SPDR ETF XLY - which track cyclical sectors that often outperform when the economy is strengthening and investors are playing offense.

The worst performer, and the only ETF to decline during that shutdown, was the Utilities Select Sector SPDR ETF XLU, which is seen as a defensive play. The next-worst performer, which actually saw a slight gain, was the defensive Consumer Staples Select Sector ETF XLP.

In all, the S&P 500 index rose during the last shutdown, and six of the 11 sector ETFs outperformed.

On cue, the S&P 500 opened down 0.4%, but reversed course to be up 0.4% in afternoon trading on Wednesday.

To be sure, one example isn't enough to bet the house on. But perhaps that's the point.

Mike O'Rourke, chief market strategist at JonesTrading, said there just isn't a big enough sample size to make a reliable statistical conclusion. But if anything, despite some minor volatility around past events, "investors have handled shutdowns in stride," he added.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

October 01, 2025 15:12 ET (19:12 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.