It's a deal--and stocks and bonds rally

10/16/2013 1:38 pm EST


Jim Jubak

Founder and Editor,

I wouldn’t be surprised if Congress misses the Treasury’s October 17 deadline by a day or two, but that isn’t likely to strike the markets as a big deal. The important news this morning is that there is a deal to end the government shutdown and to raise the debt ceiling. The bill has some procedural hurdles to jump. It could still face a filibuster in the Senate although the odds of that fell today when Texas Republican Senator Ted Cruz said he would not try to block the bill. And, I suppose, someone could have miscounted votes in the House so badly that there aren’t enough Republican yays to go along with Democratic yays to pass the bill in that chamber, but I think that too is very unlikely.

Legislation to end this crisis could reach President Obama’s desk as early as Thursday or as late as Saturday. But I think markets have concluded that Treasury Secretary Jack Lew will be able to hold the line until then. The Standard & Poor’s 500 stock index is up 1.19% as of 1 p.m. New York time today. The reaction in the bond market was even more enthusiastic. Rates on one-month Treasury bills fell to 0.27% after touching 0.45%.

The deal hammered out in the Senate would fund the government through January 15—at the lower budget level set by the sequester cuts—and extend the debt ceiling through February 7. The time bought by this agreement will, supposedly, be used to hammer out a government budget for the 2014 fiscal year that began on October 1, 2013.

Markets never sold off in this crisis—in fact the U.S. S&P 500 was up 1% for October as of yesterday’s close—so there aren’t many bargains out there. Especially given the uncertainties about U.S. economic growth created by this crisis.

But if you’re going to put money to work in an attempt to catch a relief rally and a possible end of the year rally—likely in my opinion—I think now is better than later. Two markets to look at for the biggest bounce are Japan and Brazil where moves in the yen and the real against the dollar are likely to boost stocks in the next few weeks.
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