Budget deal sets stage for robust Q4 on Wall St

LATE Wednesday night, the US Congress forged a bipartisan deal to end the two-and-a-half week US government shutdown, avert a default on Treasury bonds and set up a strong fourth quarter for the US economy and stock market.

The budget deal, which passed the House of Representatives by a margin of 285-144 and had even stronger support in the Senate, is extremely temporary in nature. It will keep the government services running until Jan 15, when Republicans and Democrats will have to agree on a new tax-and-spending package. Congress will also have to vote by Feb 7 on whether to raise the debt ceiling or default on bond payments.

Yet, this limited deal confirms investors' belief that not even the most radical conservatives such as Texas Republican Senator Ted Cruz will allow the US to default. As Thursday's deadline drew close, investors had hedged themselves against a missed payment by selling short-term Treasurys. But veteran investors such as Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund, and Eric Marshall, portfolio manager at mutual-fund firm Hodges Capital, had long dismissed as rhetoric statements by Senator Cruz and others that they would push the US into default unless President Barack Obama compromised on healthcare reform.