What investors should worry about more than a government shutdown

On Tuesday, the House passed a stopgap funding package aimed at preventing a shutdown at the end of September (if legislators fail to pass a new budget) and a looming government debt default. But the bill faces big hurdles in the Senate, ratcheting up fears that a government shutdown may occur next month.

While stock investors may be feeling jittery about many of the potential headwinds swirling in the market right now, strategists at Goldman Sachs suggest that based on history, shutdowns in and of themselves aren’t too impactful to markets—but there are other factors that could affect stocks.

“History shows that U.S. government shutdowns generally have not meaningfully impacted equity returns,” Goldman Sachs strategists led by David Kostin wrote in a Tuesday evening note. “In the 14 government shutdowns since 1980, the S&P 500 generated median returns of -0.1% on the dates of budget authority expiration, 0.1% during the shutdown periods, and 0.3% on the dates of resolution.” (See Goldman’s chart below.)

One exception, they note, was in December 2018, during the most recent shutdown, when the S&P 500 fell 2% on that spending authority expiration date. “However, this decline was likely driven primarily by investor concerns about Fed tightening,” they suggest.

The muted index impact is also consistent within the S&P 500 sectors, the strategists note.

“S&P 500 sectors and factors have evidenced very small median returns around government shutdowns. The median excess returns of sectors and factors across the 14 episodes all range between +1 [percentage point] and -1 [percentage point] in the weeks before and after budget expiry,” they wrote.

But debt limit deadlines have impacted some parts of the market in the past. The Goldman strategists note certain “government revenue” exposed stocks “underperformed the midcap S&P 400 around the 2011 and 2013 debt limit deadlines.” Those include industrials like Lockheed Martin, Northrop Grumman, General Dynamics, and Raytheon Technologies; and health care stocks like Anthem, UnitedHealth Group, Gilead Sciences, and Humana.

Ultimately, those like Brad McMillan, chief investment officer of Commonwealth Financial Network, argue that “even if [a government shutdown] were to happen, which I don’t think it will, I think the impact would be a lot less than people think. People know U.S. debt is money-good. People know the government will pay eventually,” he told Fortune.

What could rattle the markets

However, what could affect stocks during shutdowns (and, frankly, at any other time) is the broader macroeconomic picture.

While “historical returns show no consistent impact to the S&P 500 from government shutdowns or the recent debt ceiling showdowns…the underlying macro environment has been more important for equity performance,” the Goldman strategists suggest. “Our political economist has ascribed increasing risk to the upcoming debt limit and sees parallels to the experiences in 2011 and 2013.” During those years, “the S&P 500 fell in 2011 but rallied throughout the 2013 debt limit experience.”

The difference? “2011 was plagued by the European debt crisis, S&P’s downgrade of U.S. sovereign debt, and declining economic growth. In contrast, the macro environment was more favorable in 2013,” they note.

Indeed, perhaps the bigger worry right now is the state of that macro picture heading into the fall.

“I think what concerns me about it is not so much the potential for a shutdown itself but the fact that it’s in conjunction with a bunch of other things,” McMillan said.

Those include concerns about economic growth and Wall Street firms downgrading GDP forecasts in recent weeks, the Fed’s timing on tapering asset purchases and support, and the implications of China’s Evergrande debt crisis. Seasonality and technical signals in the market, meanwhile, may have also been feeding into the recent rout in the markets.

For McMillan, consumer confidence and spending are also things he’s going to be watching.

“Where I do worry about it is the impact on consumer confidence,” he said. “There’s already this kind of federal policy-related drag on confidence. And as we’ve seen before, if you start to get a shutdown, that starts to raise headlines about whether…Social Security’s gonna get paid, whether other supplemental payments [are going to get paid]. People see the headlines, and even if it doesn’t affect them directly, they start to think things are starting to get broken.”

To be sure, outside of the stock market, the consequences of a government shutdown to the broader economy could be painful. But based on Goldman’s analysis, investors likely don’t need to add “government shutdown” to their list of worries right now.

McMillan puts it in more blunt terms: “It’s all noise. As long as the economic fundamentals remain sound—and although the risks have gone up a bit, the fundamentals are still quite solid—this too will pass.”