Here's how the next government shutdown would likely affect the stock market

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Other events play a far more significant role in the U.S. market’s direction

Stock market investors need not worry about the impact of a possible U.S. government shutdown in mid-November. That’s the conclusion I reached after analyzing the stock market’s reaction to past government shutdowns.

Over the month prior to those 10 shutdowns, the stock market on average performed no differently than it did when the government was operating normally. During those shutdowns the stock market in fact performed better than average — though not by enough to satisfy traditional standards of statistical significance.

To measure whether past shutdowns have had any noticeable impact on the stock market, I focused on a list compiled by the History channel. I measured the stock market’s total return during each of those shutdowns, as well as over the month prior. The averages are summarized in the chart below. This experience superficially suggests that the market reacts poorly in the runup to a shutdown, and then performs well during that shutdown — a case of “sell the rumor, buy the news.”

 

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