US government shutdown update: Risks emerge
The shutdown is in its fourth week: ACA tax credits debate drives risks, Health Care stocks are outperforming, and a resolution is expected by November.
With the US government shutdown entering its fourth week, investors are watching closely. We now anticipate it will end no later than early November. That’s longer than expected, but short of the 35-day record from 2018–19. And we still believe that the market impact will be limited—with the Health Care sector most sensitive to the outcome—although risks are growing.
Our view is grounded in structural dynamics. The extension of Affordable Care Act (ACA) tax credits is at the heart of the political standoff. For Democrats, the shutdown presents a rare opportunity to deliver a tangible policy outcome and, thus, rebuild credibility ahead of the 2026 midterms. For Republicans, the shutdown aligns with their broader goal of curbing fiscal spending.
Importantly, the skew of ACA marketplace enrollees toward Republicans and Independents suggests that shutdown costs are higher for Republicans. In other words, the structure of the negotiations favors Democrats.
But in originally estimating the shutdown would last two weeks, we underestimated the tenacity of the Republican Party—although other factors also impeded a resolution. Negotiating the Gaza ceasefire diverted President Trump’s attention. And the administration found a clever way to pay the US military on October 15, avoiding backlash from a key constituency.
Catalyst: ACA marketplace enrollment starts November 1
November 1 could mark the moment when market sentiment begins to turn and the standoff ends. Once ACA marketplace enrollment begins, individuals will start seeing the tangible costs of losing subsidies. The need to pay the military again at month end also points to the likelihood of a resolution.
The likely policy outcome remains an extension of the ACA tax credits, as the Democrats demand. And the markets appear to agree, given that the S&P 500 Health Care Index has outperformed the broader index since the beginning of the shutdown (Figure 1).
Lack of data and macro risks
So far, the most visible market impact of the shutdown is the absence of data releases. CPI data is still being published. But given investor concerns about growth, the lack of labor market data is notable. Data gaps have also affected important releases such as investor positioning in futures markets, which has reduced visibility into the markets.
In the short term, data proxies and clearer monetary policy direction should help soften the impact of missing government data. But if the shutdown extends beyond a month, a lack of data could begin to complicate the market outlook—especially for rates.
While macro transmission channels do exist—such as reduced consumption from lost wages and disruptions to business activities—a month-long shutdown is too short to meaningfully impact the economy. If it lasts longer, the effects could become more pronounced, with some economic activity foregone rather than postponed. This would be especially true if federal employees are not compensated with back pay—although that is not our base case.
Market impacts of the shutdown
The Health Care sector faces more targeted, longer-lasting risks tied directly to the policy dispute at the root of the shutdown—the extension of ACA tax credits. We expect these tax credits to be extended, but the downside to the sector if they expire at year end would be significant. Enrollment in ACA marketplaces and, hence, the share of the population covered by health insurance would fall significantly.
Two other sectors face tail risks. Renewables may be affected by the administration’s layoffs of government personnel in key departments—such as the Department of Energy, the Environmental Protection Agency, and the Department of the Interior. This may slow clean energy permitting, rulemaking, and grant distribution, potentially affecting performance. The sector in aggregate has so far shrugged off these developments, but there are headwinds.
Headwinds also are emerging for Consumer Discretionary, specifically related to travel plans around the Thanksgiving holiday. The uncertainty around travel disruptions may lead people to cancel travel plans, particularly if the shutdown lasts into November. Again, consumption forgone, not postponed.
The shutdown remains a manageable risk—with missed releases of economic data the most visible impact on markets. If the shutdown lasts beyond early November, it may shift from a political standoff to a more market-moving event. Investors should look to November 1 as a potential inflection point, with increased ACA marketplace insurance costs and military funding deadlines likely to drive a negotiated outcome.