Labor Strikes Threaten Auto Industry and Inflation Concerns as Gas and Oil Prices Soar

Also, Disney's plunge, Amazon's moves and Instacart's IPO success

• As we await the Fed's rate decision, watch for Powell's guidance and potential future inflation triggers.
• Labor strikes impact auto and potential inflation. Oil prices and interest rates influence markets.
• Disney and Amazon stock reactions, Instacart's IPO, and GreenSky's sale underscore market dynamics

As the financial world awaited the Federal Reserve Open Market Committee (FOMC) meeting, the stock market closed slightly lower on Tuesday, with both the S&P 500 and Nasdaq Composite experiencing a 0.2% decline. Simultaneously, bond markets witnessed a significant shift, pushing yields to levels not seen in over a decade. The ten-year yield concluded the day at 4.32%, marking its highest close since 2007, while two-year yields settled at 5.11%, a level last witnessed in 2006.

The focal point of the day's financial landscape was the impending FOMC meeting. While the market anticipates the committee's decision on interest rates to be a foregone conclusion, what remains intriguing is what Jerome Powell, the Fed chairman, will convey during his post-meeting press conference. Additionally, investors will closely scrutinize the "dot plot," an instrument used by the Fed to project future interest rate changes. As of the latest data, there's a 73% probability that rates will remain unchanged in the November Fed meeting.

Foreign central banks

Beyond the domestic FOMC meeting, the Bank of England (BOE) and the Bank of Japan (BOJ) are also holding their respective meetings this week. The BOE is expected to implement a one-quarter point rate hike, raising rates to 5.5%, a level unseen since 2007. In contrast, the BOJ is expected to maintain the status quo.

Economic data reports continue to depict a sluggish economy, which may be a primary factor influencing the Fed's cautious stance. The recent revelation that housing starts have reached their lowest levels since 2020 can be attributed, at least in part, to the rise in mortgage rates. Notably, increasing oil prices have potential inflationary implications, a factor that could nudge the Fed towards raising rates later in the year. Crude oil prices settled at $90.48 on Tuesday, contributing to an 11% surge in gasoline prices between July and August, bringing the cost to $3.88 per gallon.

Auto strike continues

In a labor-related development, workers at the Detroit Three automakers continue their strike, with the threat of further strikes looming if substantial progress isn't achieved by Friday at noon. However, Ford (F) managed to reach a tentative agreement with autoworkers in Canada, averting a strike there. A prolonged strike could have ripple effects, potentially causing car prices to surge and exerting pressure on used car sales, which had recently experienced price declines. The combination of rising gas prices and the prospect of increased car prices heightens concerns about inflationary pressures.

Disney shares drop

In the realm of individual stocks, Disney (DIS) shares faced a setback, dropping over 3.6% on Tuesday. The decline came after the company unveiled plans to allocate $60 billion to theme parks and to double its cruise line capacity.

Disney stock has experienced a significant decline of over 30% since February. Amazon shares were also down, slipping 1.7%, following the announcement of plans to hire 250 thousand seasonal workers. Meanwhile, Goldman Sachs (GS) is reportedly in negotiations to sell its GreenSky lending unit, a decision prompted by regret over its purchase a year-and-a-half ago. The potential deal could value GreenSky at $500 million, a stark contrast to the price Goldman Sachs paid.

On a positive note, Instacart's shares closed higher following their IPO on Tuesday. The grocery delivery company saw its stock settle at $33.70, representing a 12% increase from the IPO price.

Today's significant market action is expected to unfold after 1 p.m. Central Time, primarily during the announcement of interest rates. However, given the near certainty that rates will remain unchanged for now, the true action is likely to commence when Powell begins addressing the public, giving markets an opportunity to digest his statements. As always, a prudent approach involves adhering to your investment plan and long-term objectives, remaining adaptable in the face of market fluctuations and uncertainties.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan

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