*The UAW may expand its strike late this week.
*Oil prices continue to inch higher.
*Powell will have his press conference work cut out for him.
*The combination of the UAW strike, student debt payments, and a potential government shutdown keep us cautious.
The United Auto Workers union said it would announce on Friday more plants to strike if no serious progress was made in talks with Ford (F) , General Motors (GM) and Chrysler-parent Stellantis (STLA) , adding to pressure on the Detroit Three automakers. Currently, about 13,000 UAW members are on strike at three key plants in Michigan, Missouri, and Ohio.
On its own, the UAW strike isn't expected to torpedo the economy but the longer it goes on the greater the impact it will have. Along these lines we have our eye on used car prices, which, as we saw last year, have a noticeable impact on inflation data.
Meanwhile, oil prices continue to inch higher following word from the Energy Information Administration (EIA) that U.S. shale output is expected to fall for the third consecutive month in October. We continue to watch the Energy Select Sector SPDR Fund (XLE) shares in the portfolio -- should they push into overbought territory in the near-term, we would look to lock in another slice of their pronounced gain since early June.
We are also facing a potential government shutdown come September 30 and the resumption of student debt payments starting in October. While it would be hard to estimate, the combined impact of these four headwinds would obviously be greater than if the economy faced just one of them.
This potential perfect storm of events is another reason for us to think the Fed will issue what is being called a "hawkish pause" following tomorrow's policy meeting. Remember, the central bank is expected to leave the fed funds rate unchanged, but as we've been saying, it will likely reiterate being data dependent and issue some tough talking points about inflation and monetary policy for the balance of the year. While the thought has been the Fed will look to upcoming inflation data to chart any next move, just like us, it will also be looking to assess the outcome of the UAW strike, a potential government shutdown and the impact of student debt payments returning.
We expect Fed Chair Powell to get questions on all of this during the Q&A portion of tomorrow's monetary policy press conference. Powell usually walks a tight rope during these events, but this time around it will be at an even higher level as he looks to stay on message. We'll be sharing our thoughts and observations on the policy statement, the Fed's updated economic projections, Powell's press conference and what it all means for the market and our holdings.
While it is still too early to assume the worst, the longer the UAW strikes drags on and if the government does shut down as we enter October, it could mean the economy starts the last quarter of the year in a pothole with oil and gas prices up year over year. Should that scenario play out, it's reasonable to think a more anxious market mood comes with it, bringing concerns about the December quarter and the holiday shopping season.
Our strategy has been to collect data and inform our opinion based on the data, and we will continue to do that and act accordingly. We already have several defensive positions in the portfolio, including our inverse ETF holdings.