Strike. Well talk about what the markets have to concentrate on as we get into the next quarter. From a technical perspective, our next guest says the 20 of the s p now above the 50day moving averages brings the market one step closer to an entry point. Joining us, fair leaf managing partner katie stockton. Great to have you. Walk us through what an entry point might mean, in your view. A lot of corrective phases unfold in this a, b, c format but three ways. We think were in the third wave, the final wave of that corrective phase. But that would require, of course, some kind of oversold entry point. Were not convinced we have that quite yet. The shortt term momentum is ve strong. We do have some minor signs of downside exhaustion including that market breadth you cited. Theyre not widespread to give us enough confidence. We do think theres a good possibility that entry happens either this week or next week. What would really help is that is a pullback in yields. The market doesnt like yields breaking out. And the tenyear yields have cleared very strong resistance at the 2022 high. If that breakout confirms this week, thats a pretty big deal. I dont think that will be favorable for equities. If it fails to confirm, that would be a positive. I was going to say, there was some last week who were pointing out maybe we get exhaustion on tlt and we walk in this morning and back to 2. 2. It holds in the balance whether this breakout confirms or not. Breakouts are often faults, right . If this proves to be a false breakout or for treasuries or treasury bond benchmarks like tlt would be a shakeout, some might see a fallout and a quick rebound to leave that breakdown unconfirmed. That, i think, is still a pretty high possibility. Volatility is obviously elevated in here. We can even see that in the vix, or the volatility index. I want to give it a chance to see if this breakout in yields confirms. And then we can focus on yearend targets and objectives. The next resistance, and weve been public about this, is about 5. 25. So its not to say that happens any time soon or even next year, but its simply the next level of resistance on the chart of yields. Certainly a level to watch. I am curious, though, because weve seen stocks lower as yields have gone higher. Is there a point at which, especially if you start to see Economic Growth slowing and the market more concerned about how all of that is unfolding that you start to see pressure on longdated treasury yields and that you could see the correlation between stocks inverse and what i mean is you see yields coming off and stocks coming off . Listen, anything is possible. We cant really rely on the historical correlations except over the long term. Over the short term, unfortunately, they do break up at times. That leaves some of us saying, okay, what next . We really just focus from the short and intermediate perspectives. We have certainly seen yields at trade along the same lines as equities measured by the s p 500. And inverse, just even in the last few months. I dont think we can rely on those correlations. The message is, yes, anything could happen. For the s p 500, where we would feel a lot better about it is when we see the indicator shift to the outside, which hasnt happened yet or see a breakout above resistance, which is around 4600. There is some support very close by for the s p 500. Its around 4325. Its being tested as we speak. And secondarily its just shy of 4200. Ideally we would like to see the 4200 area hold by the s p 500 as corrective wave runs its course. 4310 is where were trading for the s p. Got to ask about energy because youre seeing calls across the street for 100 bucks a barrel crude. Brent is closing in on that. Wti is a little lower. Could we get there . What do the technicals say . Its certainly possible but weve been calling for a test of resistance which is around 94 a barrel, based on our cloud model for wti. It was a place we could see a pullback ensue. Now theres some countertrend signals that are short to intermediate term that would suggest that the Energy Complex will continue to consolidate after last week. So, theyve had really nice gains, including crude oil. And now were seeing a reaction to the overbought conditions so we think that will persist. It could certainly end up being a pause to refresh the up move. If we see crude climb above that 94 level, then 100 to me would probably be a foregone conclusion because thats below the next resistance level. Its possible but for right now were looking for consolidation in the Energy Complex. And if the market does come out of its corrective phase more broadly, i dont think it will be the Energy Complex that leads us out of it. I think it will be technology, again, the mega caps will kick back in and well see a shift back to the former leertship of the market. I was going to ask about that, katie. Ive seen a couple arguments for the double top in the sox and equal weighted in the s p. I havent looked at the sox to the equal weighted s p but we look at it versus the market weighted s p. Largely driven by nvidia. Weve been a better seller of nvidia for a few weeks. We dont think it will be the leader it was. Thats not that big of a Statement Given how extreme that leadership was. For us we think this is a corrective phase that has its hold but will culminate in a nice opportunity to add exposure to the semis, which are already oversold from an intermediate term perspective. Talk about a sector thats kept a lot of people guessing. Katie, good to chat. Thanks for kicking off the hour. The uaw strike is entering its second week but there might be some progress when it comes to negotiations with ford. Our phil lebeau has the latest. Hi, phil. They are making progress, the uaw and ford. Its clear talking with people close to the talks familiar with whats going on that they still have a number of things they need to clear up. Before theyre close to reaching an agreement. While theyre making progress, i dont think were expected to hear an announcement any day now. We may have to wait a bit of time but they are moving closer. That said, these are the three areas that not just with ford but gm and stellantis, these are the three areas you really see the big battle happening between the uaw and the automakers. Total wage hike, somewhere in that 20 , 21 range. Does it move higher a . Cutting or ending wage tiers. This is where you were hired at a certain level and it takes a number of years to make the top pay level. The uaw wants it eliminated completely. The automakers say, well eliminate some steps, not all the way. And cost of living adjustments were stripped out after 2008 when the automakers, two went through bankruptcy. Since then, this has been a big push with the uaw. Bring back those cost of living adjustments. With that said, as you take a look at the automakers, and in terms of their cost, where the strike is right now, its expanded. There are 20 states with parts and Distribution Centers with a couple hundred workers where theres a strike going on. That has an impact for gm and stellantis the longer this goes on because those centers send parts to dealerships. It doesnt mean dealerships are running out of parts immediately, but it will in time filter in and it may be people have to wait for some repairs to be done on certain vehicles, depending on the part thats in question. As you take a look at shares of the automakers, keep in mind they have President Biden visiting tomorrow. He will go and meet with some uaw members picketing. We dont know the exact location at this point or exactly what hes going to say, how long hell be there or how long he will talk. We assume hell do a press briefing or press statement where he says, look, im in favor of the line workers getting more. But the question becomes, guys, as we talked about for some time, how much more . We know theyre going to get a hefty raise. Is it the 40 the uaw originally were asking for or is it closer to 21 , which is where the automakers are right now. That remains to be seen. Biden tomorrow, trump on wednesday. Just to go back to the parts piece of the puzzle, phil. We know that the oems have idled some facilities as well and, i guess, temporarily furloughed some workers that are not involved in the strike in the past, you know, week plus. Whats going on on the supply chain side. Are the auto Parts Manufacturers feeling the pinch already, too . At the tier one level, the largest of those parts suppliers, not yet. Keep in mind, 85 of the production that the big three do in the United States, that continues. That has not stopped. You still see plenty of demand for parts from the suppliers, et cetera. The big question is going to be when you get to the tier 2 and tier 3 suppliers, there may be one or two out there that will start to say, okay, how do we adjust to this if this strike goes on for a long period of time . Those are the smaller, privately held companies, which may have a handful of employees and they do a specific part that is part of, say, a transmission. Thats where youll start to see the real pain. Okay. Phil lebeau, thank you. Speaking of strikes, the Writers Guild reached a tentative deal with major studios and streamers, putting an end to the 146day strike. Five Straight Days of negotiations finished on sunday. A new threeyear deal expected to be ratified by the writers in a vote tomorrow. Details on what the new agreement includes will be coming later this week. Shares of netflix, disney, warner already were hedging a bit higher. Apparently according to variety, the language surrounding a. I. Was the toughest to get to and one of the final things they wrapped up. Well see if thats as easy a conversation if they bring that to the s. A. G. Side. It will be interesting to see what happens on the s. A. G. Side. Does that serve as a template . As we get into earnings season, how some of these Different Companies will talk about this because the economics are very different for netflix or some other Big Tech Companies that have helped to strike the streaming deals that were struck against versus the more traditional media players, which we know is part of what was so contentious about these deals. Indeed. Coming up, the clock is ticking for congress to reach a budget agreement. Well look at what it could cost the economy and what it means for the markets. Has the ipo window already closed . The most recent wave of Public Offerings stalling after a pretty good first days. What might that mean for the lta auts dk . Wel lkbo that in a moment. Were keeping an eye on the apparel names. A new survey from jeffries, 600 consumers with outstanding student loan debt, says spending is likely to be curtailed. They tagged foot locker and urban outfitters, lowering their price targets. You can see both of those names are under pressure today. It does speak to weve seen the Consumer Index become more disconcerting. How much more does that ratchet up now as we head into the final couple months of the year, the key Holiday Season . They surveyed 600 people with student debt and said, how concerned are you . 90 said they are very or somewhat concerned. They do say those retailers in the best position, in light of all that, walmart, costco, tjx. Costco earnings tomorrow. We know from walmart at the Goldman Sachs retail conference just earlier this month that they are actually theyve been seeing some momentum going into september with a strong backtoschool season. But, to your point, its not all what is it not all tides im totally butchering the metaphor. Its not everybody. Yes. Meanwhile, congress has under a week to reach a budget agreement. If they dont, a Government Shutdown could have big implications for the economy. Hi, carl. Im doing good. The government, maybe not so much. There are multiple Options Congress is working on to keep the government funded. At this point its very unlikely that any of them can be done in the next six days, meaning well start a shutdown very likely on october 1st. Depending on how long that shutdown lasts, it could have major impacts on the economy. About 2 million federal workers, plus some members of the military, would go without pay for weeks or even months depending on how long the shutdown lasts. When the government shut down in 2018 and 2019, it cost the economy 11 billion, according to the congressional budget office. Congressman greedz said not funding the government would be a failure for republicans. We shouldnt be in a situation where were asking our troops to go out and put their lives on the line yet not be paid. We shouldnt be in a situation to where were fighting to close the southern border but not have our Border Patrol paid. I think this is an unreasonable situation. And i think it would be a failure on our part if we actually reach that point. Now, for a lot of americans, some key services are going to continue. Social security checks are still going to come, medicare and medicaid will still be normal during the shutdown. But for a lot of investors and other folks in the economy, theyre not going to be seeing some very key data. During the shutdown we wont see jobs numbers, we wont see inflation numbers. Those wont be produced. How long a shutdown lasts isnt clear. Guys, its becoming more and more likely with each passing day that there will be one. The clock is ticking. Emily, thank you. For more on the potential for a Government Shutdown and the implications for the markets at large, lets bring in head of policy research dan clifton. Its great to have you on. I guess, first place ill start with you, how likely is it that we do get a shutdown, even if it is short lived . I thought emilys explanation was excellent. Were headed toward a shutdown. I say were stumbling towards a shutdown. I put it at 75 probability. If there is no shutdown its largely because Speaker Mccarthy makes a decision that there are only a handful in his caucus that wont agree to anything and Speaker Mccarthy makes a deal to do a bipartisan deal before the government shuts down. Thats not the base case. Its unlikely hell do that. I call it a cleansing effect where you can sit in shutdown for 10 to 14 days. You could let conservatives make their point to try to win over voters. But that political pressure will ramp up day after day after day to reopen the government. Its very likely after about two weeks, well have the government reopen and in a bipartisan deal. This is a process were going to go through. Its not convenient. Theres going to be hardship on the Human Element for individuals. From a Macro Economic perspective, it will be somewhat limited and probably wont have a big impact on stocks all by itself. To your point, a shutdown is not a default, right . Economically speaking its not cataclysmic, at least not in the first days or weeks that it happens. Markets dont tend to be nearly as spooked by a scenario like that. So, republicans that are holdouts right now, do they have less to lose by holding out . Well, yeah, theres just not its easier to shut down the government than have a debt ceiling breach. This one he doesnt have to cut a deal. The conservative vote and the conservatives can hold out. Each day that goes by while were shut down, theyre going to lose their leverage. Were the way i would explain it is, a shutdown could actually bring more government spending, higher levels of appropriations, more ukraine aid, more disaster aid. So, it actually works against the conservative interest from what theyre trying to achieve on a policy adjustment. Once every ten years we have this shutdown just so people can put out their complaints and then well wind up figuring out a way to reopen the government in the next couple of weeks or so. Dan, whats magic about a couple of weeks in your view . Is that because historically thats how long theyve lasted . Yeah. Theres a rhythm to it. People talk about 2019 being 35 days, but it was only a 25 shutdown. It was about the equivalent of eightday shutdown. The problem is congressional staffers dont get paid. They start putting pressure on their bosses. Services go down and you start getting complaints from your constituents. Its kind of a pointless exercise youre going through. I think you come to those sort of realizations. In 2013 we had this huge catalyst behind it, which is we had to raise the debt ceiling and we were going to do everything at once. Today you dont have that. You can last on this for weeks. Think about where we are politically. You have midterm elections coming up in virginia. Virginias going to be very impacted by this Government Shutdown. You also have the president of the United States polling numbers very, very bad. The republicans are creating an opportunity for biden to restate the offensive of the agenda. You dont want this going on too long. My final point is that the rating agencies have been downgrading on process. I dont agree with that personally, carl. But if youre talking about process and you bring moodys in, then you dont want this to last longer and start having a credit watch put on. I was going to say, it looks like theyre watching to see if moodys starts playing the game as well. Do schumer and mcconnell matter at all in this process . Absolutely. What i think is going to happen is well start to see the house look to see if they can pass a bill tuesday. Theyre going to try to move the appropriations. If you dont see action from the house, youll see the senate deliver its own package with ukraine aid, with disaster aid, and theyll deliver it right to the floor of the house of representatives a day or even sooner before the shutdown and try to jam up the house. Thats where mccarthy will have to make a decision and decide, hey, do i cut the deal and keep the government open for 45 days, 60 days . If not, do i go into shutdown and try to get a better deal once we go into shutdown . The senate is going to play a big role here if the house does not act. Very unlike the debt ceiling where the republicans in the senate gave mccarthy a lot of wiggle room to do what he needed to do. You just dont have that backstop support on this one. A lot of moving parts here over the next couple days, not to mention the fact you have an impeachment inquiry, for which hearings are expected to kick off later this week. Dan clifton,