As investors keep a close eye on the possible government shutdown deadline, markets are recovering from a sluggish week now.
The Fed cut interest rates to address weakness in the job market, but challenges like high costs, tariffs, and credit issues mean lower rates alone may not be enough to boost employment quickly.
Joining the As we kick off the trading week is Chris Versace, CIO of Tamatica Research.
Good morning, Chris, and thank you so much for joining me.
So as we kick off a new trading week and head into the final quarter of this year, how could a government shutdown potentially impact the economy and also market sentiment in the short term?
Well, I think there's a couple of things, Remy.
I mean, first and foremost, if we get a shutdown, the big question is going to be duration.
Is it a couple days?
Is it something, you know, more protracted?
The longer it goes on, the greater the impact on the economy.
But let's also remember two things about this particular shutdown.
One, we are hearing that if we do get a shutdown, the White House is going to instruct some, you know, larger layoffs that suggests that this could be an even greater impact on the economy.
But second, I think as investors we, we also have to recognize that.
A government shutdown if it happens would really restrict the flow of economic data, particularly, and it comes at an interesting time where there's a lot of questions about the true speed of the economy.
The Atlanta Fed GDP now model pegs the third quarter at 3.9%, which is blistering hot and really begs the question, do we need to see further rate cuts, but we need more data to see how the jobs market is really playing out.
That of course is a key focal area for the Fed.
Yeah, and Chris, I'm glad you brought that up because at the end of the week we're supposed to be getting non-farm payrolls as well as unemployment data for the latest month and ahead of that we will also be getting jobless claims as well as ADP.
So that is a crucial bunch of data.
That we are awaiting, but as we wrap up the quarter earnings are trickling in from a few names this week, including Nike and ConAgra, and we have to keep in mind we're only weeks away from the official start of earnings season.
So do you think elevated expectations can keep up here?
Well, I, I, I, I guess, you know, what we, what we want to see, Remy, is where are people continuing to spend.
So, you know, the, the Nike ConAgra dichotomy will be kind of interesting.
Are people continuing to spend on, uh, discretionary goods?
Are they shifting their purchases more to frozen foods, trying to, you know, uh, stretch their spending dollars?
Um, these are some of the questions that we'll get answered, but there's also going to be what Nike has to say about the impact of tariffs, about international demand, and of course, the dollar.
And I think all of these things will help kind of shape expectations for what's coming.
But you make a very good point that when we look at the S&P 500 and where it's trading.
Um, you know, we really need to see the E in PE start to move higher to drive the market, the S&P 500, higher on a sustainable basis.
You know, I do think the next couple weeks will be very telling for the market and how much higher we can go again on a sustained basis.
Yeah, and Chris, speaking of which, when we look at positioning data, it shows that investors do expect a year and rally, and we have to keep in mind that the month of September saw record highs for the Dow, Nasdaq, S&P 500, not to mention the rustle.
But volatility does remain low, and traders seem to be paying more to protect against a melt up.
So do you think complacency could be a potential risk here?
Complacency is always a risk, Remy, you know, that's why we keep a close eye on the, on the VIX, and when it falls below, you know, 15 or so, you have to be on guard for something that might come out of nowhere, um, you know, but typically October, November, December, together, they're very strong, uh, in terms.
Returns for the market and typically if the market has been higher the 1st 9 months of the year, that trend tends to follow.
And you have to remember that, you know, September really bucked the trend, you know, typically it is one of the worst performing months and as you mentioned, the market continued to melt up.
So I think we need to be on our toes, no question about it.
And Chris, finally, before I let you go, I do want to ask you about key levels here, not just for the major equity averages.
So right now we are looking at the S&P 500 holding above that 6660 level, and we're starting to hear about lofty price targets from some of the investment houses.
But also when we look across asset classes as well, we're paying attention to treasury yields.
So what are some key levels that you're paying attention to?
Well, you know, we are seeing some folks, you know, kind of, uh, like I said earlier, you know, increase their expectations for the S&P 500 more on the multiple front.
So you really have to ask questions as to, you know, what, what are we seeing that says we should trade it even higher multiples.
So when I see that, I, I start to think about, OK, what, what's our potential downside risk?
And I think in the near term we have to look at two levels.
One's going to be the 20 day moving average for the.
S&P 500, then of course the 50 day moving average, you know, the 20 day is a modest pullback, you know that could be something and if it holds and we get good earnings, we could see the market melt up continue if we move past it, then I think we're going to start to get more questions.
But Remy, let's remember, you know, if we get a government shutdown this week, that's going to be something the market has to contend with and the lack of data that could give folks a reason perhaps to take some of these big gains off the table.
OK, Chris, well, we will see what happens in the next week and hopefully you and I will be talking about more economic data next time we speak.
Thank you so much for joining me and thank you so much for sharing your insights.
Thanks, Ray.
