The economy is struggling and labor strikes are occurring that may make the economy worse. Strikes are a newer concept to me. I’ve heard of them from a distance and never really paid much attention, until I started caring about stock trading. Anything that affects stock prices is important to me.
For this blog, let’s check out the facts about these modern-day strikes and see how strikes impact stock prices.
Strike One: Hostess
- Hostess was started in 1930.
- This past Friday, Nov. 16, 2012, Hostess Brands management announced that it filed a motion in US Bankruptcy Court seeking permission to close it’s business and sell it’s assets, including its brands, which include but are not limited to Wonder Bread, Devil Dogs, and Twinkies.
- Direct impact on economy: 18,500 jobs lost
- Indirect impact on economy: unknown, but certainly there will be additional negative economic impact
- The longest bankruptcy process in US history was Interstate Bakeries, now-named Hostess Brand. It went from 2004 – 2009. When Interstate emerged from bankruptcy,they changed their name to Hostess Brands.
- The Nov.16, 2012 motion to close is a result of the recent ongoing Hostess Brands employee strikes that started last week. The Bakery, Confectionary, Tobacco Workers, And Grain Millers International Union reported that 92% of the Hostess Brand employees voted to strike.
- Walmart was started in 1962.
- Walmart has 1.4 million employees in the United States.
- Walmart has never filed for bankruptcy.
- Walmart has had no union-represented workers in the United States.
- Wal-Mart filed a charge with the National Labor Relations Board (NLRB) against the United Food & Commercial Workers Union (UFCW) on Thursday, November 15, 2012. The case number is 26-CB-093342. Wal-Mart contends that the UFCW is starting trouble for Wal-Mart by encouraging Wal-Mart employees to strike.
In yesterday’s blog, I wrote about the Hostess strike and how, even though some people think the unions are to blame for the end of Hostess, it can also be argued that maybe it was just time for Hostesses Gluten-ny, Glucose-y Goodies to go. They are being replaced by custom-made cupcakes and, as an alternative, healthier choices, like food bars.
What do researchers say about the impact of labor strikes on stock prices?
Believe it or not, research on that subject is not that easy to find. I did find two research studies. Here is what they said.
A January 2002 Cornell University study called, “‘When Unions Mattered': Assessing the Impact of Strikes on Financial Markets: 1925-1937” found that
“Strikes had large negative effects on industry stock valuation. In addition, longer strikes, violent strikes, strikes won by the union, strikes leading to union recognition, industry-wide strikes, and strikes that led to wage increases affected industry stock prices more negatively than strikes with other characteristics.”
This Cornell research study purposefully chose the years 1925-1937 because that was a time when unions were most consistently prevalent with similar goals, allowing for optimal measurability of outcomes.
A similar study was conducted in Johannesburg, South Africa, and the results were measured based on the impact of strikes on the Johannesburg stock market. The difference between the two studies is that the dates in this research piece focused on the years from 1984 – 1993. This study, called “The effect of industrial strikes on the value of shares listed on the Johannesburg Stock Exchange” indicate that “strikes do have a negative effect on share prices.”
This study also found that strikes are costly to the company since “losses incurred during the strike period are not counterbalanced by positive excess returns after its conclusion.”
Other research plus common sense confirms that labor strikes have a negative impact on stock prices and that is likely to hurt the economy.
Strike One: Hostess.
Strike Two: Walmart.
So, we say ‘Goodbye’ to Hostess, whose stocks we couldn’t trade anyway since they are a private company. We say ‘Watch Out’ to Wal-Mart, who is about ready to have a possible problem on Black Friday, and whose stock prices may very well be impacted if a significant strike against them occurs. Watch $WMT.
As for Strike Three? Sadly, the National Hockey League (NHL) is on strike, and while there are no NHL team stocks to trade, there is still a negative hit on the economy for those fans who support hockey. I for one will miss the sound of “Shot — Score” this hockey season, especially after such a monumental win by the LA Kings last season! (Talk about statistical achievements! The team had never won a cup since its inception in the 60s! Perhaps the worst part about a strike is leaving the players idle for an entire year. So much for momentum!)
Let’s hope for fewer strikes, more hockey, and an envigorated economy. Shot – Score!