No points for guessing what appears to be driving stocks this morning: The Washington budget tussle.
But the news on that front is more encouraging than it has been ever since the government shutdown began on Oct. 1. Indeed, the White House and senior House Republicans will meet today to discuss some sort of resolution -- even short-term -- to the current budget impasse. It is a measure of the government's dysfunction that simply putting a meeting on the books represents significant progress, and the market is taking what it can get, pushing the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average (^DJI 0.42%) up 1.28% and 1.2%, respectively, at 10:15 a.m. EDT.
The survival instinct is powerful -- particularly among political animals -- and Republicans lawmakers, even the tea-drinking species, may be starting to feel that their hardline stance regarding funding the government and raising the debt ceiling could end up being costly. According to a Gallup poll, Republicans' favorability has fallen to 28%, the lowest such rating since the survey's inception in 1992 and a 10-point decline from one month ago. To be sure, Democrats' rating is also down, but by only four points to 43%.
Furthermore, the Oct. 17 deadline produced by the Treasury department to raise the debt ceiling is looming large. Some Republicans suggest that the Treasury has some wiggle room beyond that date, on which it will have $30 billion left in its coffers, to prioritize payments to holders of Treasury bonds and bills. That is probably true, as far as it goes; in fact, the Treasury has already been using some tricks to get this far. But going down that road doesn't look like good economic governance, even assuming a default is ultimately averted.
One representative of the business community gave a stern assessment of the economic harm associated with the threat of default on Tuesday. As aluminum concern Alcoa (NYSE: AA) launched the earnings season, CEO Klaus Kleinfeld warned that the economic recovery that was "well under way" could face genuine harm from this threat, which he likened to a "giant Taser." U.S. economy to Washington: "Don't tase me, bro!"
