Eagle Bites September 5th

Labor Strikes Across the US

Unions are in focus across the country as more workers threaten industrial action and strikes continue to impact entire industries. Many workers feel compensation and conditions have worsened over the past three years despite bumper corporate profits since the pandemic. Besides pay not keeping up with the rising cost of living, employees might see a moment of leverage in a tight labor market, while big changes are threatening control of entire industries. The latest case of worker strikes includes the United Auto Workers union, which has landed approval from workers at Ford (NYSE:F), General Motors (NYSE:GM) and Stellantis (NYSE:STLA) to strike if a new contract is not worked out before Sept. 14. A work stoppage by its 150,000 workers could result in an economic loss of more than $5B in just 10 days, according to the Anderson Economic Group, given current inventories and the manufacturing environment. 

US Labor Data

Last week delivered a slew of labor market data ranging from Tuesday’s JOLTS to Wednesday’s ADP report to Friday’s jobs report. With the latest unemployment rate up to 3.8% (a sharp jump from July’s 3.5%), markets are left to balance the good news of less likely incremental rate hikes with the bad news that a cooling economy could present significant earnings headwinds. Additionally, given the rising level of credit card delinquencies seen by key retailers, the San Francisco Fed’s analysis that excess savings could run dry by the end of Q3 2023, and the upcoming resumption of student loan payments the consumer could find itself in a tough spot in the near future. 

Fed Takes on Large Loses Amid Rising Interest Rates

For much of the past, the US Federal Reserve was on the winning side when it came to making money. With near-zero interest rates, the Fed was able to make tens of billions- even over a hundred billion dollars- in income from regional banks. However, with interest rates at over 5%, the Fed is now required to pay out significantly more on borrowed funds from Money Market Funds and financial institutions than it did in the past. At the same time, their portfolio is structured with low-yielding MBS and US treasury products, which creates a large deficit. In essence, the gains made by money market investors stem from the losses of the US Fed and American taxpayers.

US Stocks drive higher

U.S. stocks continue to rise as shares from technologies, industrials, and financials increase. On Tuesday, the S&P 500 had its most significant three-day gain since March, which reduced its decline this month to 2%. Technology stocks have been moving upward this past year but consumer confidence has tumbled and employers have reported fewer jobs open this month. Industries like utilities and energy have been on the decline this past year and investors say they believe that the market is due for a comeback. Only time will tell whether these stocks are able to bounce back from losses this past year.

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