U.S. stocks fared somewhat worse than we’d expected on Monday, although the moderate weakness that occurred was a far cry from the collapse a hysterical news media had prepared us for.  Index futures got hit hard Sunday night, to be sure, but it was the kind of stage-managed weakness that occurs nearly every Sunday night. Typically, professional traders take advantage of whatever mood swings weekend news stories have stirred up. In this case, the nervous Nellies were primed to dump stocks at fire-sale prices, stampeded by a scare-mongering press that would have us believe the global financial system will unravel if Democrats and Republican’s can’t work things out.  On Friday, Mr. Obama planted the seeds of fear in the Mainstream Media’s tapioca-filled head, alluding to the possibility that the stock market would punish House Speaker Boehner for walking out on him. The major news outlets eagerly bought into this claptrap, and their fearful drumbeat grew louder and louder as the weekend wore on.

By early Sunday evening, when index futures began to trade, widows and pensioners were sufficiently panic-stricken that they became the patsies of Murphy Men eager to fade their action. The Sunday-night crew has traditionally run off-hours sessions like a carnival midway, and they lost no time taking shares down to levels where buyers faced little risk. The E-Mini S&Ps plummeted the equivalent of 150 Dow points moments after trading began at 6:15 p.m. EDT.  That turned out to be the worst of the selling, much as we had anticipated, and stocks moved steadily higher for the next 19 hours.  We’d warned subscribers of a Sunday-night trap in the following note disseminated two hours before trading started:  “Securities markets were set to open Sunday night with no U.S. debt deal in place to calm investors.  This is the angle the news media were playing up, but it’s just a bunch of baloney. [Our] guess, implied in today’s commentary, is that the markets will ignore the supposed deficit ‘crisis’  this week much as they ignored it last week — i.e., by cruising blithely higher.”   ( Click here for a free trial subscription, and you’ll be alerted the next time.)

Punch and Judy on the Hill

Although by closing down 88 points on the day, the Dow Industrials could hardly be said to have ignored the Punch-and-Judy show on Capitol Hill, we expect the stock market to recoup its losses quickly when lawmakers strike the sort of ineffectual deal that Democrats and Republicans can actually agree on. Shares could be restrained in the meantime, but we expect them to leap for…joy? when the inevitable word of a political settlement hits the tape.  The irony of it, as we mentioned here yesterday, is that nothing the two sides could agree on could conceivably be good for the economy.  But stocks will rise nonetheless, impelled not so much by the news, which ultimately can only be bearish for stocks, as by traders trying to jump ahead of other traders programmed to buy on any news that sounds even remotely constructive.