The economic relevance of the shutdown has also been greatly mitigated. The Pentagon has called back most of their workers. Meanwhile, Congress has agreed to provide back pay to everyone who has been furloughed. United Technologies' Sikorsky Aircraft unit canceled temporary layoffs that had been scheduled to go into effect today.
That changes the economic dynamics.
What cover can moderate Republicans be given? Maybe a dramatic drop in the market as we approach the debt ceiling extension.
Meantime, stocks will continue to move sideways at best and slowly grind lower. It's good news, since we are accomplishing the consolidation that a lot of people wanted to see. If you're a value guy, you like seeing what you're seeing: Stocks are cheaper.
And what about the downside? What happens if we go past October 17? Markets will certainly move lower, and the downside would likely be another five percent.
Of course, if a deal is announced, we will likely get a rally, maybe two percent. Then fundamentals will take over.
Much has been made that the 10-year yield, rock-steady at 2.6 percent, is telegraphing that there will be no default and bondholders will be paid. They got support this morning when the CEO of Moody's went on CNBC to state that even if we went past the October 17th deadline, the U.S. was unlikely to default. That is because Moody's believes bondholders would still get paid, that the U.S. would prioritize its debt payments.
One thing's for sure: if we go to October 17th, expect the 10-year yield to move toward 2.5 percent or lower, from the 2.6 percent today.