Government To Reopen After Historic Shutdown: Federal Services ETFs Mixed As Investors Await Spending Clarity

The U.S. Senate passed a bipartisan deal that would clear the way to reopen the government through January 30 after weeks of political stalemate that left nearly 700,000 federal employees without pay and disrupted essential services throughout the country. The decision, which now goes to the House, ignited a modest market rally as investors bet on a revival of spending across key federal agencies, such as defense and infrastructure, after months of paralysis.

The deal temporarily halts plans to downsize the federal workforce and restores agency funding, allowing the government to resume, adding roughly $1.8 trillion a year to its debt. While the fix is short-term, it offers much-needed relief for sectors tied to federal contracts and procurement pipelines. Nonetheless, investors remain cautious.

While the deal removes the immediate risk of another shutdown, markets responded mutedly. iShares U.S. Aerospace & Defense ETF (BATS:ITA), Global X U.S. Infrastructure Development ETF (BATS:PAVE), and Invesco Building & Construction ETF (NYSE:PKB) saw mixed moves on Tuesday morning as traders awaited clarity on when and how agency budgets would flow again.

ETFs Tracking Federal Spending Rally Ahead Of Reopening

ETFs exposed to defense, infrastructure and other government-related services are expected to benefit from resumed activity at the Pentagon. But with no guarantee that Trump will refrain from further cuts, sentiment remains fragile.

Some 45% of the Defense Department’s 740,000 civilian workers have been furloughed, according to a New York Times report, bringing new contract awards and maintenance work to a standstill.

Reflecting this dilemma, ITA inched down. Broader infrastructure plays like PAVE and PKB also slid. However, with the Energy, Transportation, and Interior Departments, among others, preparing to reboot programs, delayed infrastructure and clean-energy projects could get back on track, ultimately benefiting these ETFs.

Agencies Prepare To Restart, But Recovery May Be Uneven

The shutdown’s effects were unequal: Departments like Education and the Environmental Protection Agency furloughed 87% and 89% of employees, respectively, while Veterans Affairs and Treasury operated largely as usual, per The New York Times. Essential services, from air traffic control to Social Security payments, continued, though workers did not get paid and productivity suffered.

Even as funding returns, administrative delays and reduced contract flow may persist through year-end. According to Reuters, several federal departments have yet to finalize contingency plans to restore contracts, adding to near-term uncertainty for contractors and suppliers.

Another funding showdown over healthcare subsidies in December, which has been set up as part of the agreement, meanwhile, could re-ignite uncertainty and cap upside for some ETFs.

Yet a sense of relief is setting in. Defense, infrastructure and cybersecurity funds could be areas of renewed strength as spending normalizes. With Washington set to reopen its doors, federal services ETFs are rallying on expectations of fiscal revival, though somewhat cautiously.

Read Next:

Photo: Shutterstock