I was poised to state that summer has officially ended, before realizing we have one more week. While I love the Fall, I am not ready to give up on summer just yet, and don’t get me started on pumpkin spice. Well, the markets look to finish mostly flat this week with the Nasdaq continuing its slow decline. Tight monetary policy is beginning to be felt and extraneous headwinds are also coming into play. While we can’t rule out a surprise twist this month, it appears Fed policy is taking hold and we might expect the market to pause while it digests this news.
There are two big stories that will be making headlines if they haven’t already. The first is the UAW strike representing 145,000 workers at Ford, General Motors, and Stellantis (previously Chrysler). This is a big deal as it represents a major part of the economy and more than a handful of employees. Unlike earlier this year when President Biden compelled striking railroad workers to return to work, it seems this time he is throwing his weight behind the union. He boldly called for auto profits to be shared fairly with auto workers. I am trying not to be cynical when I say I recognize a presidential election will soon be upon us. However, taking sides this early could embolden the UAW and prolong the strike unnecessarily. The economic impact could be serious as it may have a ripple effect through the suppliers and into other areas of the economy, not to mention exacerbating the shortage of cars and ever-increasing car prices. We hope for a speedy agreement but are realistic in assuming this could drag on for some weeks. Car dealership inventories are typically no more than 2-4 weeks.
The second big story this week, which is only slowly making the news, is the potential for a U.S. government shutdown at the end of September. Before you exclaim, NOT AGAIN, just know that while these events can cause some near-term volatility in the week leading up to the shutdown, they rarely end up causing the market to fall much or for long. I came across data this week analyzing past shutdowns, and on average the markets fall 0.40% the week of the shutdown but finish up 0.10% by the end of the shutdown. While the media will undoubtedly make a big deal out of this issue, just know that it historically hasn’t resulted in a big swing for the markets in either direction. To make compliance happy… past performance is no guarantee of future results. Also, know that Speaker of the House, Kevin McCarthy, is working hard to create a 30 to 60-day extension. He is on record saying he does not want this to go down to the wire like has happened in the past. Let’s hope he and the Freedom Caucus come to an arrangement sooner rather than later.
In company news, Kellogg, which has been in existence for 117 years, has decided to split into two separate entities. I admit am a little sentimental when it comes to these old dinosaurs and don’t like to see them dramatically change as sometimes is necessary. The two independent publicly traded companies will be named Kellanova (K) and WK Kellogg Co (KLG). The former will feature the growth-oriented portfolio of snacks and emerging markets, while the latter “will focus and integrate its commercial strategy and execution, while modernizing its supply chain.” On another subject, the issue of retail theft has been a sore spot for many retailers in the last couple of years. Walmart announced it is going to try a new approach. It will open a police “workspace” inside an Atlanta store in the hopes of curtailing would-be thieves. Last year, the company said it may be forced to close locations in areas where governments are taking a soft-on-crime approach. Perhaps this new idea may allow these stores to stay open. And lastly, if you’ve been to a pharmacy since 2006, you will undoubtedly have had to give your driver’s license and promise your firstborn to the pharmacist to get a nasal decongestant that contains pseudoephedrine (one of the ingredients made famous by Breaking Bad). In that time, the industry came up with an alternative using phenylephrine which, let’s be honest, didn’t work as well. Now we know why. A recent study showed that use of phenylephrine has about as much effect as a placebo. Cue the class-action lawsuits.
In closing, if you are an out-of-work journalist or an aspiring writer, this one is for you. America’s largest newspaper company, Gannett, is hiring a reporter to cover nothing but Taylor Swift. It is uncommon for an entertainment reporter to cover only one artist, but The Tennessean and USA Today are planning to hire two who do. Both hourly roles require international travel and pay approximately $40,000 - $100,000 per year. Before you submit your resume, know that Gannett has shrunk local newsrooms and laid off staff, including cutting 6% of its media division. But it’s Taylor Swift that makes it so worth it. Now you know.Bruce J. Mason, MBA