Aside from the usual geopolitical headaches-especially in the Middle East, which appears to be on the brink of a major war, investors last week kept a close eye on the dockers' strike at several U.S. ports.
The problem arose over a six-year contract that was due to expire on September 30. However, the port owners did not want to raise wages by a maximum of 50%, while the union demanded a 77% increase.
In the end, the worst-case scenario played out. As of October 1, a vital logistics chain in the country, which accounts for about half of U.S. maritime imports, was paralyzed, costing the economy about $5 billion daily.
Fortunately, this did not cause an economic collapse in the U.S., as the two sides reached an agreement on Thursday. Analysts were concerned that recovery from a single day of downtime could take weeks.
By contrast, a more prolonged strike could have taken up to a month and a half to resolve. So, if you've been stockpiling popcorn, you might want to save it for a better time, which will undoubtedly come.
So what now?
The end of the strike is fantastic news for everyone involved, not just the workers and the ports, but also the shipping lines and retailers. And let's not forget the consumers, who may have suffered shortages.
While markets, particularly the Dow Jones Index, may not have surged dramatically on this news, they got a positive boost.
However, the agreement will only be in effect until January, so it is a bit early to say that the underlying issue has been fully addressed. Investors should remain attentive to the development of the discussions.
Another risk to consider is that the dockworkers' successful negotiation for a substantial wage increase could encourage other unions to advocate for the rights and welfare of their members.
The timing could not be better, as the U.S. presidential election is approaching. Naturally, it is to be expected that the ruling party will do everything possible to secure votes.
Whether through promises or pressuring management to meet demands, they'll be driven to act. The downside is that this could trigger higher wage inflation, increasing company costs.
In this context, the recent Fed decision to cut rates by 50 basis points feels rushed. Considering these new risks, the likelihood of similar actions in the upcoming meetings is decreasing.
Yet, the markets don't seem concerned about this — at least for now. They still appear bullish, as if there are no risks at all in the economy, now or in the future…
