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A possible government shutdown is looming in just about three weeks. As investors game out potential impacts, the past offers lessons for how yet another lapse in government funding could play out in the markets. A Yahoo Finance review of six recent protracted US government shutdowns lasting at least a few trading days found that four ended with stocks in the green. However, more often than not, the drivers of those price changes were corporate developments or macroeconomic factors unrelated to the shutdowns themselves. This particular flavor of DC dysfunction typically doesn’t change the trajectory of the markets in either direction.

When it comes to broader economic impacts, however, the effects of a shutdown are clearer. Experts often peg the decline in government spending due to a shutdown as likely to reduce economic growth by around 0.15 percentage points for each week it lasts. Shutdowns temporarily cut off a slice of government spending – minus huge swaths of “mandatory” programs like Social Security as well as “essential” functions – with most of the reduced spending made up down the road when the government gets back to full steam. MoodyÔÇÖs Analytics chief economist Mark Zandi recently estimated that one worst-case scenario – a historically unprecedented shutdown that begins on Oct. 1 and stretches all the way through the fourth quarter – would cut 1.2 percentage points from fourth quarter growth.

“We don’t want to see that,” he says.

The National Gallery of Art was closed due to the government shutdown on Jan. 8, 2019. (NICHOLAS KAMM/AFP via Getty Images)

Highlights from past shutdowns

Adviser Investments recently crunched the numbers on all shutdowns – 20 in total since 1976 – and found that the market was almost exactly flat after adding all the stoppages together. It returned just 0.04%. But that doesnÔÇÖt mean individual shutdowns have been a wash for traders. The longest shutdown in American history occurred from Dec. 22, 2018 until Jan. 25, 2019, in a standoff between then-President Trump and lawmakers over funding for a border wall. Things commenced with a sharp 4% drop in stocks but investors ended up happy after the 35-day shutdown, with the S&P 500 rising almost 8% overall beginning the day before the shutdown commenced.

In total, 2019 ended up being one of the best years in recent history for stocks but the gains were more often attributed to things like strong corporate earnings and easing trade tensions with China. The various 2019 summaries of that year in stocks didnÔÇÖt mention the shutdown at all.

Then-Senate Minority Leader Charles Schumer gesturing to a sign blaming then-President Trump during the 2018 government shutdown. (Tom Williams/CQ Roll Call)

Investors did experience losses during a government shutdown in 1990 and gains in 1995 and 2013. But in each case, the returns evidenced during the shutdowns mirrored the overall returns that year.

One recent example of a shutdown bucking the market was in 2018. During that bad year overall, stocks ticked up during a brief three-day shutdown in January. But by the end of the year the bottom fell out of the market. Traders in 2018 saw deep declines, especially in December 2018. That resulted from a host of issues, from concerns of a global economic slowdown to a looming debt ceiling fight.

Debt ceiling fights have historically been much more consequential for markets, with the entire governmentÔÇÖs borrowing authority up for debate. A debt ceiling standoff this spring ended up having less impact on stocks than many had projected, while a 2011 debate saw the markets yo-yo dramatically in response to the standoff.

Why this crisis may be different

Negotiations over the shutdown are set to commence in earnest this coming week as the House of Representatives returns. It will be the first time since July that both chambers of Congress will be in session at the same time.

The question many economists are likely to be asking in coming days is whether the chances of a historically long shutdown begin to increase. A shutdown that lasted the entire fourth quarter of 2023 – which still is seen as a remote possibility – would be the longest shutdown in history by a mile and could have deeper stock market and economic effects than many are projecting now.

Yet with divisions in Congress at a fever pitch – and House Speaker Kevin McCarthyÔÇÖs job potentially at risk if he doesnÔÇÖt put unrelated issues on the table – a long shutdown is a scenario that canÔÇÖt be ruled out.

Speaker Kevin McCarthy attends a G7 Speakers’ Meeting in Tokyo on Sept. 8. (KAZUHIRO NOGI/AFP via Getty Images)

The most controversial push is from Rep. Marjorie Taylor Greene, who wants a government funding deal that is paired with an impeachment inquiry against President Biden. Also potentially on the table in the multi-stage negotiations set to play out for the remainder of the year are other measures around new border security provisions as well as an overhaul of the Justice DepartmentÔÇÖs budget.

For the moment, both sides are dug in, with Secretary of Transportation Pete Buttigieg recently warning a shutdown ÔÇ£would be a mess for the US economy.ÔÇØ

Ben Werschkul is Washington correspondent for Yahoo Finance.

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