The US government has entered its first shutdown since 2018 after lawmakers failed to reach a funding agreement, halting swathes of federal operations and leaving hundreds of thousands of employees without pay.
While the political theatre in Washington has so far left headline equity indices relatively unmoved, traders are already repositioning portfolios across sectors in anticipation of both short-term disruption and longer-term uncertainty.
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Nigel Green, chief executive of financial advisory group deVere, said the shutdown is already shaping investor behaviour beneath the surface. “Markets may look steady, but capital is rotating at speed,” he said. “Defence, services, airlines, cyclicals and defensive havens are all being reassessed. Investors are not waiting for clarity; they’re acting now.”
Defence stocks have been among the strongest performers in recent years, buoyed by surging federal demand for advanced weapons systems and missile defence. That structural support remains intact. Yet the prospect of delayed payments and heightened political risk has tempered enthusiasm.
Green suggested that dips in the sector may prove tactical entry points rather than signals of structural weakness: “Defence is resilient, but no sector is immune to politics. Long-term demand is entrenched, and sophisticated investors are preparing to step in during volatility.”
Government services: first casualties
Providers of consulting, IT and security services to the federal government are viewed more cautiously. These companies typically feel the impact of a shutdown almost immediately as projects stall and payments slow. “Investors know government service providers are always the first casualties of a shutdown,”* Green said. “Until there’s certainty, money is moving out of this space.”
Airline stocks face twin headwinds: the suspension of government-funded travel and the squeeze on consumer spending from unpaid federal employees. Analysts say this sector is already seeing positioning shift lower as traders cut exposure. “Airlines are being squeezed from both ends,” said Green. “Business demand is frozen while consumer demand weakens. We expect further downside before recovery opportunities appear.”
Industrials, financials and consumer-linked stocks are being treated as a bellwether for the shutdown’s duration. More than 600,000 furloughed workers mean a short-term rise in unemployment, and President Donald Trump’s warning of permanent layoffs has heightened concern about consumption.
A brief shutdown would likely see capital rotate back into these names quickly. But a prolonged impasse would force investors to reduce cyclical exposure and pivot further into defensive assets such as healthcare, utilities and US Treasuries.
Flight to safety for investors
Global positioning points to a modest but clear risk-off shift. Gold has surged to a record above $3,870 an ounce, while the dollar has softened, suggesting a partial loss of its safe-haven appeal. Treasury demand has strengthened, underscoring investors’ preference for liquidity in uncertain conditions. Markets outside the US are not dismissing this as a temporary blip. The surge in gold and demand for Treasuries show global investors are hedging against deeper disruption.
For many traders, the most disruptive feature of the shutdown is not halted services but halted data. If the standoff delays releases such as nonfarm payrolls and inflation figures, the Federal Reserve and markets will be forced to make policy and trading decisions without their usual guideposts. Investors can adapt to good news or bad news, but they cannot adapt to no news. When data disappears, sentiment takes over, and that amplifies volatility.
Some historical context
Past shutdowns have had limited lasting impact on equities, with the S&P 500 historically recovering quickly once funding resumes. But strategists caution that today’s backdrop — rising debt, a softening labour market and elevated valuations — makes markets more vulnerable than in previous cycles.
Lale Akoner, global market analyst at eToro, noted that the episode adds a modest risk premium rather than a fundamental change to the outlook. “The bigger risk is uncertainty: if the shutdown drags on, it can dent business confidence and complicate Fed policy. But this is not a debt-ceiling crisis — default risk is off the table.”
For traders, the playbook is already visible: lighten exposure to airlines, government contractors and cyclicals; use volatility in defence as a buying opportunity; maintain or add to defensives, gold and Treasuries; and prepare for exaggerated moves once official data resumes.
As Green puts it: “This shutdown comes at a delicate moment for global markets. Defence remains strong, but sentiment will wobble. Government services and airlines face direct hits. Cyclicals are at risk if unemployment rises. The winners will be those who move decisively while others hesitate.”
