Markets Rally on Return of Federal Soap Opera

Prepare for a fourth quarter rip to new highs.

Last night, the fine folks in Washington ended the shutdown with an 11th hour deal that raises the debt ceiling. All of our problems are finally solved for good!

Just kidding…

This deal only reopens the government through January 15th. That suspends the debt ceiling through February 7th. Remember, we’re living in a land of perpetual political dysfunction. I look forward to the same old problems reemerging in three months.

But enough about Congress. I’m finished with this soap opera for now. With all of the distractions behind us, we can bring the market back into focus. Let’s get to two things that really matter: earnings and performance.

While the shutdown drama held the financial media hostage over the past couple of weeks, earnings season limped into action. Expectations are low—just as they were in the second quarter. Thanks to crappy performance over the summer, analysts have already braced investors for a bad trip…

The revisions are startling. Analysts were expecting to see third-quarter earnings for the S&P 500 rise to 5.1% growth as recently as this summer, according to MarketWatch. As of today, the consensus is 1.4% growth.

Once again, they’ve set the bar low enough to take a lot of the worry of huge misses out of earnings season. Rocky financial performance probably won’t derail stocks this quarter. In fact, I’m guessing sold-out bulls will fight hard to get back into stocks.

Mutual funds still can’t seem to catch their benchmarks. While third quarter performance was a little better, it’s important to realize these fund managers are fighting for their jobs…

Mutual Fund Performance

This isn’t some fairy tale I’m concocting out of thin air. It’s just how the market works. Big money will chase what works into the end of the year. Look for tech stocks to ramp higher, along with other outperforming sectors.

Regards,

Greg Guenthner
for The Daily Reckoning

Ed. Note: In today’s Rude Awakening email edition, Greg gave his readers 5 specific numbers to watch as the “shutdown bounce” continues, and one specific opportunity in a little-known corner of the market that could skyrocket now that the government is “back on.” If you didn’t get it, not to worry. The Rude Awakening goes out every morning ahead of the markets, so you’re prepared for whatever the day throws at you. Sign up for FREE, right here, and stay one step ahead of tomorrow’s markets.