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Vested Shorts: US economy, debut of Enhanced Options Income ETF, and labor strikes at GM, Ford, Stellantis

by Parth Parikh
September 16, 2023
3 min read
Vested Shorts: US economy, debut of Enhanced Options Income ETF, and labor strikes at GM, Ford, Stellantis

In today’s edition

  • Auto workers begin strikes at three major carmakers
  • Launch of Nasdaq-100 Enhanced Option Income ETF
  • Data on US economy

Market Snapshot

An increase in 10-year Treasury yields and mixed economic data led to a decline in the S&P 500 and Nasdaq Composite indexes, marking their second consecutive week of losses.

Market close data: Week of Sep 11-15, 2023


Auto workers begin strikes at three major carmakers

With no resolution in sight, United Auto Workers (UAW) union members began targeted walkouts against General Motors, Ford, and Stellantis at midnight on September 14. The move comes amid contentious negotiations for a new four-year master contract and follows the expiration of the previous agreement.

Source: Reuters

Under the leadership of newly elected president Shawn Fain, the UAW argues that automakers have thrived at labor’s expense in recent years. Fain emphasizes the record profits bagged by GM and Stellantis, juxtaposing it with the reduced compensation auto industry workers have endured post the 2008 financial crisis. The union is actively negotiating these pain points as their prior four-year contract concluded just hours before the strike.

  • Pay Raises: The central grievance is the growing pay gap between the upper echelons and factory workers. Fain has pointed out that executives have seen their pay increase by 40% in the past four years and demand the same raise for workers. 
  • Cost of Living Allowance: The union’s plea also revolves around the annual $1500 inflation protection provided to its members, equivalent to a 2.2% hike for those earning $32/hr.  As inflation rates soar to unprecedented levels, the UAW calls for restoring inflation-adjusted compensations, a benefit relinquished in 2009.
  • Benefits for EV workers: As automakers plan to go fully electric in the coming decades, new electric battery plants are opening in the US. Yet, the compensation structure for these facilities remains disputed. Currently, only the Ohio-based Ultium plant is unionized, with starting wages noticeably lower than traditional plants.

According to the UAW’s strike strategy, initial walkouts will target specific locations, gradually expanding based on negotiation progress. This tactic not only provides greater leverage but also helps conserve the UAW’s $850 million strike fund. However, Fain hasn’t ruled out the possibility of an extensive strike. Historically, such strikes have proved costly for automakers. GM, for instance, faced a loss of around $3.6 billion during a 40-day strike in 2019.

From the carmakers’ perspective, labor costs are already substantial, hovering around $64 an hour when combining wages and benefits. This is higher than the rates of international automakers operating in the U.S., such as Toyota, and significantly above Tesla’s labor costs. The automakers argue that these concessions will put them at a disadvantage against their Asian competitors and Tesla.

News Summaries

Miami-based Defiance ETFs has launched the Defiance Nasdaq-100 Enhanced Option Income ETF, becoming the first to offer daily options income generation. The ETF aims to capitalize on the growing interest in short-dated options contracts—known as 0DTE (zero days to expiry) options—which have recently constituted up to half of the daily trading volume on major indexes like the S&P 500. The fund combines U.S. large-cap stocks and Treasuries, and seeks to generate income by selling highly volatile 0DTE put options. While the new ETF aims to offer investors a steady income stream, analysts warn that its focus on volatile short-term options could expose it to significant risk. The fund is part of a broader trend of ETFs aiming to generate income and reduce portfolio volatility by selling options, with some existing funds growing substantially over the last year.

The latest data on the U.S. economy suggests resilience and ongoing demand, reducing fears of an imminent recession but raising concerns about persistent inflation. Retail sales for August unexpectedly rose by 0.6%, driven in part by a 5.2% increase in gasoline station receipts. Even without counting gas and auto sales, spending increased by 0.2%. Jobless claims continue to be low, indicating a stable labor market. However, the Producer Price Index, a measure of wholesale prices, increased by a higher-than-expected 0.7% in August, the largest monthly spike in over a year, mainly due to soaring energy costs. This suggests that inflation pressures may be more enduring than policymakers anticipate, posing challenges for the Federal Reserve.

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