Is the Standstill Over = Market Rebound? An Analysis of the Performance of U.S. Stocks, Gold, and BTC After Each Government Restart.

Written by: David, Deep Tide TechFlow

At 5 a.m. Beijing time on November 13, a government shutdown crisis that lasted for 43 days and set a historical record in the United States is about to come to an end.

The U.S. House of Representatives passed a temporary funding bill by a vote of 222-209 on the evening of November 12, local time, and it was signed into law by Trump.

With this, the stalemate that began on October 1 has officially come to an end.

In these 43 days, there have been widespread flight delays, interruptions in food aid programs, and a suspension of economic data releases, casting uncertainty over all aspects of the world's largest economy.

How will the market react with the end of the standstill?

For investors in the cryptocurrency market and traditional financial markets, this is not only the end of a political event but also an experimental window to observe how asset prices respond to the “elimination of uncertainty.”

Historical data shows that after the last few significant government shutdowns in the United States, U.S. stocks, gold, and Bitcoin exhibited different trend characteristics.

This time, when the government reopens and federal funds start flowing again, which assets might benefit?

If you don't have time to read, the picture below can help you quickly grasp the main points.

The following text contains more details to help you learn from history and become a smart investor.

How does a halt affect investments?

To understand the market reaction after the end of a government shutdown, it is important to clarify: how does a government shutdown affect asset prices?

A government shutdown is by no means as simple as “civil servants taking a holiday.”

According to estimates by the U.S. Congressional Budget Office ( CBO ), the 35-day shutdown in 2018-2019 resulted in an estimated permanent GDP loss of about $3 billion, along with approximately $8 billion in delayed temporary economic activity.

This round of 43 days of suspension has broken historical records. Although the CBO has not yet released an economic impact assessment of this suspension, considering that the duration is longer and the scope of impact is broader, the economic losses are likely to significantly exceed those of 2018-2019.

The reduction in substantial economic activities will be reflected in key indicators such as GDP growth rate, consumption data, and corporate profits.

But more important than the economic losses is the uncertainty itself.

One of the core logics of the financial market is: investors are averse to uncertainty.

When the future is unpredictable, funds tend to reduce holdings in high-risk assets (such as tech stocks and growth stocks), increase holdings in safe-haven assets (such as gold and U.S. Treasuries), reduce leverage, and hold cash to wait and see.

So conversely, what will happen when the suspension ends? Theoretically, the end of the suspension means:

Policy certainty returns - at least for the next few months, government funding is secured.

Economic data recovery release - Investors regain tools to assess economic fundamentals.

Fiscal spending restart - Delayed procurement, wages, and benefits begin to be disbursed, providing a short-term boost to the economy.

Risk Appetite Repair - Worst Case Resolution, Funds Re-Seek Returns

This often triggers a wave of “relief rally” (, as the elimination of uncertainty itself is a positive factor.

However, it is important to note that this rebound may not be long-lasting.

After the end of the shutdown, the market will quickly return to focusing on the economic fundamentals; therefore, we believe the impact of the end of the shutdown on the market can be divided into two levels:

Short term ) (1-2 weeks): The emotional repair brought by the elimination of uncertainty usually benefits risk assets.

Medium term ( 1-3 months): Depends on whether the economic fundamentals are truly damaged, as well as other macro factors.

For the cryptocurrency market, there is another special consideration: the resumption of operations by regulatory agencies.

During the shutdown, agencies such as the SEC and CFTC basically came to a standstill, with approval processes paused and enforcement actions delayed. How these agencies will “catch up” when the government reopens is also a variable worth paying attention to.

Next, let's look at the actual performance of the US stock market, gold, and Bitcoin after the end of several major shutdowns over the past history.

Historical Review of the US Stock Market: After the Halt Ends, There is Always a “Comforting Rebound”

Let us focus on three prolonged suspension events that significantly impacted the market, and see how investors responded with real money in the US stock market when the government reopened.

It can be seen:

1. December 1995 Stalemate (21 Days): The Eve of the Tech Bubble, Moderate Rise

On December 16, 1995, the Clinton administration and the Republican-controlled Congress became deadlocked over a budget balancing plan, forcing the government to shut down.

Market Performance:

1 month later: S&P 500 rises to 656.07 (+6.1%), Nasdaq 1093.17 (+5.9%), Dow Jones 5539.45 (+6.6%);

3 months later: S&P 500 reported 644.24 (+4.2%), Nasdaq 1105.66 (+7.1%), Dow Jones 5594.37 (+7.6%);

This is more like a typical rise followed by adjustment. After a month of stagnation, the three major indices recorded a rebound of around 6%, but by the three-month mark, the increase had narrowed, with the S&P 500 even retreating from its one-month high.

Although it is a long time ago, considering the political and economic environment at that time, the underlying reason may be that the market, after digesting the short-term benefits of the end of the suspension, has returned to pricing based on fundamentals.

The beginning of 1996 marked the onset of America's economic “golden age”. With the emergence of personal computers and the internet, technology was in its infancy, inflation was mild, and the market itself was in a long-term upward trend, making the disruptions feel more like an interlude.

In October 2013, the shutdown lasted 16 days: US stocks broke through the pre-financial crisis high.

On October 1, 2013, the Republicans attempted to force the Obama administration to delay the implementation of the Affordable Care Act through a shutdown, which led to another government closure. This shutdown lasted for 16 days, and an agreement was reached in the early hours of October 17.

Market performance:

1 month later: S&P 500 rises to 1791.53 (+3.4%), Nasdaq 3949.07 (+2.2%), Dow Jones 15976.02 (+3.9%)

3 months later: S&P 500 reported 1838.7 (+6.1%), Nasdaq 4218.69 (+9.2%), Dow Jones 16417.01 (+6.8%)

The recent shutdown occurred at a special historical juncture: October 2013 was precisely the moment when the U.S. stock market emerged from the shadow of the financial crisis and broke through the 2007 high.

The end of the standstill coincided almost simultaneously with a technological breakthrough, compounded by the QE3 quantitative easing that the Federal Reserve was implementing at the time, leading to extremely optimistic market sentiment. The Nasdaq saw an increase of nearly 10% within 3 months, significantly outperforming traditional blue-chip stocks, and technology stocks once again became the vanguard of the rebound.

3.2018 December suspension (35 days): Bear market bottom reversal, the strongest rebound from the suspension.

On December 22, 2018, Trump insisted on demanding $5.7 billion for the US-Mexico border wall funding, leading to a standoff with the Democrats. This confrontation lasted until January 25, 2019, setting the record for the longest government shutdown in history at that time (35 days), until this round of 42 days surpassed it.

Market Performance:

1 month later: S&P 500 rises to 2796.11 (+4.9%), Nasdaq 7554.46 (+5.4%), Dow Jones 26091.95 (+5.5%)

3 months later: S&P 500 reports 2926.17 (+9.8%), Nasdaq 8102.01 (+13.1%), Dow Jones 26597.05 (+7.5%)

This is the strongest rebound among the three suspensions, and there are special reasons behind it.

In the fourth quarter of 2018, the US stock market plummeted nearly 20% from its peak due to the Federal Reserve's interest rate hikes and trade tensions, hitting a temporary low on December 24.

The end of the standstill coincided almost simultaneously with the market bottoming out, and the subsequent shift in the Federal Reserve's policy to pause interest rate hikes could lead to a strong rebound due to these dual positive factors.

The Nasdaq's 13% increase over the past 3 months once again confirms the high elasticity of tech stocks during the recovery phase of risk appetite.

Looking back at the historical data of the US stock market after the shutdown, three clear patterns emerge:

First, a short-term rebound is a high-probability event. After the end of the three suspensions, all three major indices rose within one month, with an increase of between 2% and 7%. The elimination of uncertainty itself is a positive factor.

Second, technology stocks often outperform the market. The Nasdaq's increases over three months were 7.1%, 9.2%, and 13.1%, all significantly higher than the Dow Jones's 7.6%, 6.8%, and 7.5%.

Thirdly, the mid-term trend depends on the macro environment. The performance in the 1-3 months after the cessation varies greatly, with the rise followed by adjustment in 1996, the continuous rise in 2013, and the strong rebound in 2019, each having its own macro logic behind it, rather than the cessation itself.

Gold Historical Review: The Trend Does Not Depend on the Stalemate Itself

When we turn our attention to gold, we find a story that is completely different from the stock market.

1. December 1995 Stoppage (21 days): Slight fluctuations

Gold price performance:

Stoppage ends (1996 January 1): $399.45/ounce

1 month later (1996 February): $404.76 (+1.3%)

3 months later (1996 April: $392.85 (-1.7%)

The impact of this political event on gold prices is negligible.

2. Stopped in October 2013 (16 days): Continuous pullback

Gold price performance:

Stalemate ends (2013 October): $1320/ounce

1 month later (2013 November: $1280 (-3.0%)

3 months later (2014 January: $1240 (-6.1%)

This is the weakest performance of gold among the three suspensions. The year 2013 was a bear market year for gold, dropping from ( at the beginning of the year to $1200 by the end, with an annual decline of over 25%.

The reason behind this is that the Federal Reserve has begun discussing the reduction of quantitative easing, and the strengthening dollar is suppressing gold prices. After the stalemate ends, as uncertainty dissipates, the safe-haven properties of gold further weaken, leading to a rapid decline in prices.

3. December 2018 Stalemate (35 days): Rise first then retreat

Gold price performance:

Stalemate ends (2019 January: $1290/ounce

1 month later $1700 February 2019): $1320 (+2.3%)

3 months later (2019 April): ((0%

During this shutdown, the US stock market experienced a sharp decline at the end of 2018, with heightened risk aversion pushing gold prices from ( to $1290. After the shutdown ended, gold prices briefly surged to $1320, but as the stock market rebounded and risk appetite recovered, gold prices fell back to the level at the end of the shutdown, resulting in a net change of zero over three months.

In the shutdowns of 2013 and 1996, the stock market rose by 3-6% after the shutdown ended, while gold either fell by $1290 (down 6.1% in 2013) or fluctuated around flat (down 1.7% in 1996).

This also aligns with the subjective perception that when uncertainty is eliminated and risk appetite rises, funds flow from safe-haven assets to risk assets.

If history repeats itself, after this round of 42 days of suspension ends, gold may face the following two scenarios:

Scenario 1: Risk aversion sentiment quickly dissipates. If gold prices have risen due to safe-haven demand during the shutdown, the end of the shutdown may trigger “profit-taking,” leading to a short-term correction of 5-10% in gold prices. This was most evident in the case of 2013.

Scenario 2: Macro risks remain unresolved. If the shutdown has ended, but macro concerns such as U.S. fiscal issues, the debt ceiling, and the risk of economic recession still persist, gold may maintain its strength or even continue to rise.

After all, the standstill is only a temporary end.

From the current gold price perspective, the end of the standstill may alleviate short-term safe-haven demand, but it is unlikely to change the long-term upward trend of gold.

BTC Historical Review: Limited Samples, but Still Insightful

Finally, we have arrived at the question that cryptocurrency investors are most concerned about: What will happen to Bitcoin after the halt ends?

To be honest, the historical samples are extremely limited. Bitcoin did not exist when it halted in 1996, and when it halted in 2013, the market cap of BTC was too small and it was in a super bull market; the only truly valuable reference is the one from 2018-2019.

1. Stopped in October 2013 for 16 days: a bull market interlude, not much related to the suspension.

BTC price performance:

Work stoppage ends (2013-10-17$1230 ：$142.41

1 month later: $440.95 (+209.6%)

3 months later: $834.48 (+485.9%)

This data looks extremely exaggerated, tripling in 1 month and nearly sextupling in 3 months.

2013 was one of the craziest bull market years in Bitcoin's history, soaring over 5000% throughout the year, rising from ( at the beginning of the year to a peak of $1,147 by the end.

October marks the acceleration phase of this super bull market. BTC has just experienced a sharp drop following the FBI's seizure of the “Silk Road”, and the market quickly rebounded after a brief panic, entering the craziest peak phase.

However, this government shutdown has almost no causal relationship with the BTC trend; the government shutdown is more like a noise-level event in the price logic of BTC.

2. December 2018 Stalemate (35 days): Bear market bottom, key turning point

BTC Price Performance:

The standstill is over (2019-01-25(: $3607.39

1 month later: $3807 (+5.5%)

3 months later: $5466.52 (+51.5%)

In December 2018, BTC was at the bottom of a long bear market. From the peak of $19,000 in December 2017, BTC had plummeted over 80%, hitting a seasonal low of $3,122 on December 15, 2018. The start of the halt (December 22, )) coincided almost perfectly with BTC hitting its bottom.

Within one month after the halt ended, BTC only rebounded modestly by 5.5%, far lower than the 4.9-5.5% increase in U.S. stocks;

However, by the 3-month mark, BTC's increase reached 51.5%, significantly outperforming the S&P 500's 9.8% and Nasdaq's 13.1%.

There are several key factors behind this:

First, the bottom reversal logic of BTC itself. At the beginning of 2019, the crypto market began to reach a consensus that “the worst moment is over”: miners capitulated, retail investors exited, but institutions started to position themselves.

Secondly, the improvement of the macro environment. The Federal Reserve released dovish signals in early 2019, improving global liquidity expectations, which is positive for high-risk assets like BTC.

Thirdly, at that time, the market capitalization of BTC was about 60 billion dollars, which was much smaller than the stock market, and the liquidity was worse, resulting in greater volatility. When risk appetite rebounds, BTC's resilience naturally becomes stronger.

Compared to the performance of gold and the stock market, Bitcoin shows more as a result of macro Beta plus its own cycle overlap.

In the short term, BTC resembles a high beta risk asset.

After the halt ends, when uncertainty is removed and risk appetite rebounds, the rebound of BTC ($13 12%) is close to that of the Nasdaq ((5.4%) and far exceeds that of gold ((2.3%). This indicates that over a time dimension of 1-3 months, the pricing logic of BTC is more akin to that of technology stocks rather than safe-haven assets.

However, in the medium to long term, BTC has its own cycle. After BTC rose to $5,200 in April 2019, it continued to climb to $13,800 in June, with a gain far exceeding that of any traditional asset. The core driver of this round of increase may be the approaching four-year halving cycle, with institutional and large companies entering the market afterwards.

The impact of the government shutdown is already minimal.

Looking ahead, how will BTC react if this round of 42 days of suspension comes to an end?

Short term )1-2 weeks): If the halt ends and triggers a “relief rally” in the US stock market, BTC is likely to follow suit and rise;

Medium term (1-3 months): The key depends on the macro environment. If the Federal Reserve maintains a loose policy, the economic data is not bad, and there are no new political crises, BTC may continue its upward trend.

But don't forget, there is currently no breakthrough narrative in the cryptocurrency market, and it's unlikely that the price of BTC will be driven by internal factors.

The standstill is over, the game continues.

The 42-day suspension is about to come to an end, but this is not the conclusion; rather, it marks the beginning of a new round of market changes.

Looking back at history, the market usually experiences a short-term rebound after a halt; however, the sustainability of such rebounds should be viewed rationally.

When you see the market rising 5% after the halt ends, don’t rush to FOMO; when you see a short-term pullback in BTC, don’t panic sell.

Stay rational, focus on the fundamentals, manage risks well, and principles will not change due to a standstill.

Events can turn the page, but the game will continue.