Government shutdown fears rattle US stocks, but history shows upside

investing.com:

Investing.com-- The U.S. government is facing a potential shutdown at the end of September, with lawmakers having flagged little progress towards reaching consensus over a spending bill. 

With Congress now facing less than five days to approve and pass a spending bill, analysts see a shutdown as a likely scenario. A swathe of government services are expected to be suspended, while thousands of government employees are also set to be furloughed without pay. 

Concerns over a potential shutdown kept U.S. stock indexes trading lower over the past week, although a bulk of this weakness was also driven by fears of a hawkish Federal Reserve. The S&P 500 is trading down 2.7% over the past seven days. 

But while a shutdown is expected to provide more headwinds to the U.S. economy- especially as it grapples with higher-for-longer interest rates and sticky inflation, historical data shows that stock markets have performed well during the three shutdowns over the past 10 years. 

In the 2018-2019 shutdown, which was the longest in U.S. history at 35 days, the S&P 500 sank 7% in the week before the shutdown. It then slid another 2.7% on the day the shutdown was announced. 

But the index then rebounded more than 11% over the duration of the shutdown.

Earlier in January 2018, the U.S. government was shut down for two days amid disagreements over a spending bill. The S&P 500 rose 0.8% in the week before the shutdown, and with the event only lasting one weekend, the index rose sharply in the following week and hit a lifetime high at the time. 

In 2013, during a 16-day shutdown in October, the S&P 500 fell as much as 2.9% in the first week of the shutdown. But the index then rebounded nearly 5% over the next nine days, and went on to notch