Labor Strikes Roil Auto Industry as UAW Pushes for 40% Pay Increase
Sep 18, 2023
The stock market seemed to be on cruise control heading into last Friday, with little to suggest any impending storms on the horizon.
It appeared we might even have a leisurely "triple witching" day—a term referring to the expiration of listed options, futures, and options on futures. However, as seasoned investors know all too well, markets have a knack for catching us off guard just when things seem tranquil. Last Friday, the S&P 500 took a 1.2% tumble, while the Nasdaq Composite fell by 1.5%.
These losses raised some eyebrows, but it's essential to keep perspective. Over the week, markets remained stable, and volatility stubbornly clung to historically low levels. The big story dominating the financial landscape this week is the eagerly anticipated Federal Reserve meeting. At its conclusion, it's widely expected that interest rates will remain unchanged.
Although the markets ended the week on a flat note, September witnessed stocks relinquishing some of the gains they've enjoyed throughout the year. The S&P 500 slipped about 1.3%, with the Nasdaq Composite following suit with a 2.3% drop. Notably, tech giants like Apple (AAPL) took a hit, with its shares plummeting nearly 7%, while market favorite Nvidia (NVDA) experienced an even steeper decline of 11%.
Simultaneously, we've observed a rise in interest rates and oil prices have surged. Two-year yields now sit at 5.05%, and the ten-year yield hovers around 4.33%, marking rates we haven't seen in over a decade.
This surge in interest rates aligns with the relentless upward trajectory of oil prices, a trend that we've been closely monitoring. In premarket trading, crude oil futures have breached the $91 mark, edging closer to their yearly highs. It's a point I've emphasized before: if there's one factor capable of swiftly reigniting inflation fears, it's the price of oil. This is a development that demands our continued attention.
On a related note, as previously mentioned, it's "Fed week." The Federal Reserve Open Market Committee (FOMC) is set to unveil its decision on interest rates this Wednesday. According to CME projections, there's an overwhelming 99% certainty that rates will remain unchanged this month, with a 69% likelihood of a similar outcome when the Fed reconvenes in November. Beyond our domestic Fed meeting, the Bank of England will convene on Thursday, followed by the Bank of Japan on Friday. While sudden rate hikes aren't a primary concern, the investing community will be keenly observing Jerome Powell's post-meeting comments for insights into the Fed's plans.
Turning our gaze elsewhere, the United Auto Workers (UAW) union is now entering its fourth day of targeted strikes against the major automakers. As of the latest reports, all parties involved still appear to be far from reaching any mutually agreeable terms. Over the weekend, UAW President Shawn Frain rejected Stellantis' (STLA) offer of a 21% pay increase, holding out for a substantial 40% raise. Negotiations are scheduled to continue throughout the week, leaving the auto industry's labor situation hanging in balance.
Today, after the market closes, Instacart is poised to price its initial public offering (IPO) as the grocery delivery giant seeks a valuation of $9 billion. Shares are expected to commence trading tomorrow. Additionally, Wednesday will bring us the eagerly awaited earnings report from FedEx (FDX). Investors will be especially keen on FedEx's forecasts as we approach the holiday season, as the company often serves as a reliable proxy for gauging online shopping trends.
Finally, existing home sales data is slated for release on Thursday. The market for existing homes has been characterized by limited supply, with many homeowners opting to stay put rather than risk taking on higher mortgage interest rates if they were to relocate. No significant surprises are anticipated in these figures.
As always, our guiding principle should be to stay aligned with our investment plan and long-term objectives. These market fluctuations, though unsettling, are part of the investing journey. It's crucial to maintain a steady course, staying informed and adaptable as we navigate the unpredictable seas of the financial world.
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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