Wall Street analyst James Saft of  Reuters says don’t buy any relief rally should the debt ceiling actually be raised.

If history is any guide, we will soon see a deal to lift the debt ceiling, followed by yet another cockamamie relief rally.

Don’t buy it; even if we get past the debt ceiling, and even if the U.S. can avoid a ratings downgrade, the situation facing U.S. assets is still grave. Firstly, cutting the deficit is a process, one with multiple opportunities over time for disruptive market events, but moreover one whose ultimate outcome, at best, is going to hurt corporate profits and suppress economic growth.

And even putting aside the impact of falling government spending, recent data shows a cooling manufacturing economy, consumers who are not consuming and a dangerously weak housing market.

While it’s possible that Aug. 2 arrives with no agreement to raise the debt ceiling and begin cutting the deficit, that outcome is a form of ritual suicide that both Democrats and Republicans will probably collectively choose to avoid.
That’s good — a default would be horrific — but a deal won’t change the terribly weak fundamentals now facing the U.S., and U.S. corporations in specific.

He is also pointing to a cooling economy, which was not hot to begin with.

Consumers are hunkering down, whether by putting off purchases of food and diapers in the days before pay and government assistance checks arrive or by putting off discretionary big ticket buys. Corning cut its outlook for the glass market on Wednesday, sending its shares and those of its rivals into a tailspin.

“What you are seeing is the major TV brands like Sony, Samsung, LG are all reducing their forecasts of what will be sold at retail,” Corning finance chief Jim Flaws told Reuters.

Consumers, Flaws said, are putting their money into items other than TV sets or “perhaps just not spending … at all.”
As for housing, there are more than six million homes either in mortgage delinquency or outright foreclosure. Those homes are going to take an enormous amount of time to clear the market, dragging down valuations and comparisons all the while, making mortgages tougher to get. In some parts of the country there really is very little real estate activity outside of the distressed sector. Don’t look for construction to pick up the slack, then.

Washington and their payed pundits may want you to think it’s getting better but it ain’t. Wall Street insiders however, know the truth.    They see this kabuki dance ending either bad or very bad.  Which may explain why the markets are not reacting like expected.