NO MORE SHUTDOWNS
The last three weeks were very interesting for the markets. Strong, strong upward movement with a couple of dips in the middle. Clearly, the markets were pricing in the eventual resolution of the debt ceiling crisis: government reopening with no debt ceiling default. FYI, Andrew Keene was predicting this all along.
Now the markets seem to be pricing in smooth sailing: either a grand bargain between D’s and R’s, or at least a mini-bargain. This seems appropriate when very powerful people like Sen. Minority Leader Mitch McConnell (R, KY) state outright that there will NOT be another shutdown soon. McConnell is up for re-election in 2014. Apparently, he believes it better to be seen as a compromiser in the general election, than as an ideological purist in his R primary.
However, the question remains whether the market’s rosy picture is justified. Clearly, the market has strong upside momentum. But, if the shutdown cost the country $24B and 0.5% to 0.6% in GDP, weaker economic numbers will have to be discounted as one time events, for the market to continue strong.
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