Wall Street is focused on the Fed and its policy meeting on Tuesday-Wednesday. Most expect the central bank will hold rates "unchanged" at the current rate between 5.25%-5.50% when the policy decision is announced on Wednesday at 12 p.m CST.

The announcement will include updated economic projections and be followed by a press conference with Fed Chair Jerome Powell at 12:30 p.m. CST. Wall Street's biggest concerns heading into the meeting include whether the Fed will hike rates at one of its policy meetings in November or December; and how soon and by how far does the central bank expect rates will fall in 2024?

In many regards, the bigger impact on stocks will be the length of time the Fed keeps its benchmark rate at elevated levels. Keep in mind, we have a highly anticipated US Presidential election coming up in 2024, and typically the Fed doesn't like to do a whole lot ahead of a big election. Recent economic data has indicated that headline inflation is rising again because of gasoline prices. However, stripping out food and energy, the so-called "core" rates that the Fed prefers witnessed significant pullbacks in both the Consumer and Producer Price Indexes.

It's unlikely that Powell will provide a definitive answer as to when the Fed's final rate hike might be or how long the central bank intends to keep rates at their plateau, although Wall Street will try to glean clues from the Fed chief's delivery and demeanor during his press conference. I don't think Powell is going to do anything but stay hawkish and data dependent in his tone. I have to imagine he is also trying to talk down the stock market to some degree in an effort to help cool inflation.

Typically, the end to rate hikes mean that rate cuts aren't far behind. In the past five cycles, the time between the last rate hike and the first rate cut is 7.6 months. Bulls are betting on a stock market rally once the Fed does officially end its hiking campaign, pointing to historical data that shows the S&P 500 has risen an average of +13% following the final hike to the first rate cut in previous cycles, and further gaining an average of +6.5% in the six months following the cut.

Bears, however, believe stocks may struggle to move much higher due to already high valuations, shrinking corporate margins, high bond yields that continue to pull money away from stocks, and a Fed that might stay hawkish much longer than the bulls are forecasting.

Today, the only economic data is the Housing Market Index. Tomorrow the trade will be digesting the latest Housing Starts data. There are no US earnings of note. FedEx will report on Wednesday.

It's worth mentioning that there seems to be slightly less hand wringing over China's economy with the latest data showing a pickup in factory output and retail sales. However, there is still a huge amount of uncertainty about the country's property market and many economists remain concerned that the fallout could lead to a wider and deeper financial crisis.

The Chances of a Government Shutdown Move Higher: Lawmakers headed back to their districts last Thursday night after some drama-filled days in Congress left the US government more likely to shut down than when the week began. The back-and-forth began in earnest on Tuesday with the launch of an impeachment inquiry by House Speaker Kevin McCarthy to mollify the most conservative reaches of his caucus. But it immediately became clear that that move wouldn’t lessen the political pressure around a shutdown. By Thursday, House Republicans had failed to make progress in an area that usually is one of the easiest places to find agreement, defense appropriations. The scuttling of action there left McCarthy and members of the far-right Freedom Caucus in a tense standoff with f-bombs being tossed behind closed doors and personal attacks online. Meanwhile, the financial world looked on from afar with dismay as the developments increased the odds that a shuttering of the government’s doors. The likelihood of a government shutdown in two weeks has increased to at least 60% wrote Greg Valliere, the chief US policy strategist at AGF Investments, in a note to clients Friday morning. He added that McCarthy is contending with a 'burn it all down' caucus in the House, which wants a shutdown and the ouster of McCarthy as speaker. Source Yahoofinance

What If You Bought Apple Shares Instead of New iPhones... What would happen if, instead of buying the newest iPhone every time Apple launches one, you bought that same amount of Apple stock? There is a tweet floating around saying that if you had bought Apple shares instead of an iPhone every time they came out, you’d have hundreds of millions of dollars. The math is off (if you’d spent $20k on Apple stock when the rumors of the iPhone first started, you’d have about $1.5 million today. What if instead of buying a top-of-the-line iPhone every time Apple released a new one, you spent the same amount on Apple stock. If you had done that, by my calculations, you’d have spent around $16,000 on iPhones over the years (that’s around $20,000 in today’s dollars). If you’d bought Apple shares instead, you’d today have about $147,000 or so. Source TechCrunch

UAW Talks Resumed Over Weekend with "Slow Progress": Talks between the Detroit Three automakers and the United Auto Workers continued Sunday with 12,700 workers at three plants still walking picket lines. He added "progress is slow" in the talks. "I don't really want to say we're closer," he said. The union is seeking significant wage increases, an end to a tiered wage system and cost-of-living adjustments, among other demands. Specifically, the UAW initially proposed 46% wage increases over the length of the contract (40% when not compounded). A subsequent offer decreased that to 36% not compounded. Ahead of the 11:59 p.m. Thursday, Sept. 14 Detroit Three-UAW contracts expiration, Fain called for a targeted strike at three plants: GM's Wentzville Assembly in Missouri, Stellantis' Toledo Assembly in Ohio and Ford's Michigan Assembly in Wayne. Fain could call more workers to walk out at different plants depending on how talks proceed. This is the first time in its history the UAW has called a strike against all three automakers simultaneously. As a result of the strike in the final assembly and paint areas at Michigan Assembly, Ford said Friday it had to temporarily lay off 600 workers in other parts of the plant. On the same day, GM warned it will likely have to halt production at Fairfax Assembly in Kansas as a result of Wentzville's work stoppage because the Missouri plant supplies parts to Fairfax. Source Detroit News

Student-Loan Restart Threatens to Pull $100 Billion Out of Consumers’ Pockets: Starting Oct. 1, tens of millions of student-loan borrowers will need to make payments averaging between $200 and $300 each month. The payments will mark the first time that borrowers have had to make good on their loans since the Education Department instituted a pause in March 2020. In the interim, they spent the money on televisions, travel, new homes and thousands of other products. That spending is one reason the economy has remained resilient in recent years, despite a surge in interest rates. Economists, on the other hand, say the renewed payments are a relatively small problem for the more than $18 trillion in annual U.S. consumer spending. Keep in mind, even before the pandemic pause, only around half of the 43 million Americans with federal student loans were making regular payments. The other half were either delinquent, in default, or in a grace period because they were currently enrolled in school or graduated within the prior six months. Source WSJ

California Sues 5 Oil Giants, Claiming Decades of Deception: The state of California sued several of the world’s biggest oil companies on Friday, claiming their actions have caused tens of billions of dollars in damage and that they deceived the public by downplaying the risks posed by fossil fuels. The civil case, filed in superior court in San Francisco, is the latest and most significant lawsuit to target oil, gas and coal companies over their role in causing climate change. It seeks creation of an abatement fund to pay for the future damages caused by climate related disasters in the state. The lawsuit targets five companies: Exxon Mobil, Shell, BP, ConocoPhillips, and Chevron, which is headquartered in San Ramon, Calif. The American Petroleum Institute, an industry trade group based in Washington, is also listed as a defendant. Seven other states and dozens of municipalities have filed similar lawsuits in recent years. But the California lawsuit immediately becomes one of the most significant legal challenges facing the fossil fuel industry. Source NYTIMES

Strikes Stokes Wall Street Worries Over Corporate Margins: The strike by United Auto Workers against the Big 3 carmakers is sparking a broader worry among stock-market investors over the outlook for corporate profits. The UAW set up picket lines shortly after midnight, striking all three big automakers — Ford, General Motors, and Stellantis - at the same time. Workers walked out of a Ford factory in Michigan, a Stellantis Jeep factory in Ohio and GM pickup factory in Missouri, leaving scope for further action at other facilities. The UAW, which initially called for a 40% wage increase over four years, is now pushing for an increase in the mid-30% range. American Airlines earlier this summer agreed to a +40% raise for pilots over four years, while United Parcel Service reached an agreement to boost pay for unionized workers by +18% over five years. And a strike by film and television writers continues. It speaks to a continued rise in real wages that may not be fully appreciated, Mark Hackett, chief of investment research at Nationwide, arguing that consensus expectations for 12% earnings growth in 2024 may prove overly optimistic. Corporate margins peaked two years ago in the second quarter of 2021 as inflation began to accelerate, noted a team of strategists led by Binky Chadha at Deutsche Bank, in a Thursday note. They then fell for six consecutive quarters as the pandemic boom reversed. “The impact on overall GDP should be limited but, if production backlogs create new supply shortages, then strikes could drive prices higher,” said Paul Ashworth, chief North America economist at Capital Economics, in a Friday note. Source Marketwatch

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