The good news is that the biggest fear of the Street--that the government will remain shut down until the October 17th debt ceiling deadline and may even default on its debt--seems less likely.
House Republicans--particularly House Speaker John Boehner--are signaling that the goal of de-funding or repealing Obamacare is gradually being abandoned in favor of negotiations over spending reductions, what Greg Valliere has called "a down payment on entitlement and tax reform."
There are reports that several dozen Republican might vote in favor of a clean continuing resolution bill if Mr. Boehner brought it up for a vote.
For the markets, it's not been a bad week: the S&P 500 is down only 0.8 percent, and only 2.7 percent from the September 19th historic high. That is good and bad news: Good because the markets believe some deal will be reached, yet bad because many believe that a much more aggressive sell-off would help bring everyone to the table.
Before anyone gets too complacent, remember what happened in August 2011 when Congress couldn't agree to raise the debt ceiling and S&P downgraded U.S. debt. The S&P lost about 10 percent in the days around that downgrade.
And some people haven't forgotten that: the Financial Times ran a story late last night that some U.S. banks were stocking up on cash for their ATM machines. The report said two of the country's 10 biggest banks were putting into place a "playbook" used in August 2011, adding cash as a cushion in case customers panicked and attempted to withdraw cash as the deadline gets closer.
Silly, I know, but that's human nature.
Let's focus on the markets. We are about to enter a seasonally strong period for the stock market. Is there any reason to believe it won't be? If we step back from the shutdown, here's what I see:
1) because of the shutdown and ambivalent economic data points, the Fed will not begin tapering in October;
2) European Central Bank chief Mario Draghi has indicated easy money conditions will continue in Europe;
3) global economic data is slowly improving; and,
4) we have just finished another "low-bar" earnings season for the third quarter, with growth of about 3.8 percent expected in the S&P 500, a number that has been quietly coming down for a couple months. If the standard pattern holds, that number will now begin to rise and earnings will end up 200 to 300 basis points above that number (5.8 to 6.8 percent).
Not great, but good enough for yet another record high earnings.
All this speaks to a market that should be sideways to up in Q4. Unfortunately, the risk is very much to the downside: The selloff on the shutdown has not been large, the panic has not been great, and with stocks near historic highs
1) Sandwich shop Potbelly (PBPB) is pricing 7.5 million shares at $14, well above the $11-$12 tonight; and
2) Japan down again today, down about five percent for the week.
—By CNBC's Bob Pisani