Could you imagine the impact of what a rail strike would have on the U.S. economy?

It would have been catastrophic.. 

Disastrous Rail Strike Avoided..  For Now!

The White House projected that as many as 765,000 people would have been put out of work within the first two weeks.

And we should be thanking our lucky stars that the government intervened here.

Most labor disputes never end up being debated in Congress. 

But thanks to a nearly century-old law that regulates labor relations only when it comes to railroads and airlines, what otherwise would be strictly an economic issue became a political one.

On Thursday of last week, the Senate voted to avert a freight rail strike just days before crucial drinking water, food and energy shipments were set to be sidelined, after hurried talks in both chambers of Congress and a visit to the Senate from two of President Joe Biden’s Cabinet secretaries — but a bipartisan push to add paid sick leave to the deal fell short.

“The goal of the Railway Labor Act was to reduce the likelihood of a work stoppage,” said Ian Jefferies, the CEO of the Association of American Railroads, the trade group that represents the railroads. 

“And it’s been remarkably effective in doing that.”

As much as management likes the law and its limits on strikes, the unions hate it. 

They say it would be far easier to reach a deal that their members can support if they had the leverage of a possible strike. 

And they say that management, when weighing the cost of that possible strike, would realize that they have the resources needed to meet those demands without an actual work stoppage.

The four major railroads — Union Pacific (UNP), CSX (CSX), Norfolk Southern (NSC) and Berkshire Hathaway (BRKA)’s Burlington Northern Santa Fe — reported some form of record profits in 2021. 

Wall Street analysts expect even bigger profits in 2022, at least for the three railroads they cover.

Based on 19 Wall Street analysts offering 12 month price targets for Union Pacific (UNP) in the last 3 months. The average price target is $218.42 with a high forecast of $260.00 and a low forecast of $177.00.  Union Pacific (UNP)  closed Friday’s session at $214.73.

Based on 20 Wall Street analysts offering 12 month price targets for  CSX (CSX) in the last 3 months. The average price target is $32.60 with a high forecast of $39.00 and a low forecast of $23.00. CSX (CSX) closed Friday’s session at $32.05.

Based on 20 Wall Street analysts offering 12 month price targets for Norfolk Southern (NSC) in the last 3 months. The average price target is $244.74 with a high forecast of $285.00 and a low forecast of $177.00. Norfolk Southern (NSC) closed Friday’s session at $254.07 but sold off -1.40% during after hours trading down to $250.52.

One of the most direct impacts of a rail shutdown would be a potential shortage of clean drinking water for millions of households that rely on publicly owned water systems.

Treatment plants use chlorine and other chemicals to clean the water that eventually flows out of the tap, and the vast majority of those chemicals are transported around the country by rail from factories to distribution centers.

We’ll be keeping a close eye on this story because if the new railroad deal goes south,there could be mayhem in the streets…

Why Wall St. wasn’t pleased with Friday’s jobs report

The November jobs report was released Friday and the numbers were much stronger than expected.

About 263,000 jobs were created last month, down a tiny bit from the upwardly revised 284,000 gigs created a month before but way better than the 200,000 jobs expected by economists.

So why did the Dow initially tumble by hundreds of points?

The most obvious reason is that the resilient labor market and generally robust economy are defying ongoing efforts by the Federal Reserve to cool things down and lower the highest consumer prices in 40 years.

Months of rate hikes have been intended to make borrowing more expensive and thus pour cold water over economic growth.

Yet while layoffs have been increasing in some sectors — notably tech and media — other sectors, including hospitality and healthcare, are still hiring aggressively.

The real question among Wall Street traders and investors is whether the Fed will now apply more medicine to the economy to get its desired effect.

Financial markets anticipate a half-point rate increase when Fed officials convene this month, down from the three-quarter-point rate hikes seen in past months.

That’s still likely. The Fed won’t want to freak everyone out by throwing markets a curve ball with an unexpectedly high increase on Dec. 14.

But Friday’s jobs report raises questions about what to expect in 2023. Many economists have been anticipating quarter-point rate hikes in the first and second quarters of next year.

Is another half-point increase now in the cards?

Moreover, perhaps the biggest red flag in the latest jobs report is that wages are still rising, up 0.6% from the month before and 5.1% higher than a year ago.

Here’s the thing: Higher wages typically incentivize businesses to raise prices in hopes consumers will be comfortable spending their increased pay.

That, in turn, only exacerbates the inflation situation.

The next Federal Open Market Committee (FOMC) meeting is scheduled for next week, December 13-14, 2022 and you can guarantee we’ll be keeping a close eye on it.

Are You Slicker Than Oil? OPEC is meeting virtually today (Sunday 12/4)

Oil Finished above $80, Up almost 7% for the Week.

WTI crude oil closed Friday’s trading session at $81.51, up $0.29, or 0.3%. 

For the week, WTI crude futures gained 6.9% as the market awaits the crucial OPEC+ meeting (Today, Sunday, 12/4/22)

Oil prices are trending higher over the past few sessions as a spate of protests in China is leading to a relaxation in strict CV-19 lockdowns. 

Furthermore, the European Union has moved closer to a $60 per barrel price cap on Russian oil. The development is a step towards mitigating extreme volatility in energy prices in Europe as well as globally.

Natural gas finished the session down 2.6% to $6.56 today and could remain range bound in the coming weeks even as colder weather sets in. The Energy Select Sector SPDR ETF (XLE) too has remained largely flat over the past month and is hovering at the $90.8 level.

Oil and gas stocks can produce significant capital gains from share price appreciation and attractive dividend income during periods of high oil and gas prices.

Some of the biggest companies in the world are oil and gas producers, including ExxonMobil (XOM), Royal Dutch Shell (SHEL), Cheniere Energy (LNG), ConocoPhillips (COP), Chevron (CVX), and Occidental Petroleum (OXY).

ExxonMobil (XOM) has 12 Wall Street analysts offering 12 month price targets in the last 3 months. The average price target is $117.42 with a high forecast of $138.00 and a low forecast of $100.00. The average price target represents a 6.88% change from the last price of $109.86.

Royal Dutch Shell (SHEL) has 4 Wall Street analysts offering 12 month price targets in the last 3 months. The average price target is $68.25 with a high forecast of $76.00 and a low forecast of $60.00. The average price target represents a 18.24% change from the last price of $57.72.

Cheniere Energy (LNG) has 14 Wall Street analysts offering 12 month price targets in the last 3 months. The average price target is $210.93 with a high forecast of $236.00 and a low forecast of $195.00. The average price target represents a 20.72% change from the last price of $174.72.

ConocoPhillips (COP) has 18 Wall Street analysts offering 12 month price targets in the last 3 months. The average price target is $141.24 with a high forecast of $167.00 and a low forecast of $105.00. The average price target represents a 15.60% change from the last price of $122.18.

Chevron (CVX) has 11 Wall Street analysts offering 12 month price targets in the last 3 months. The average price target is $189.18 with a high forecast of $215.00 and a low forecast of $143.00. The average price target represents a 4.50% change from the last price of $181.03.

Occidental Petroleum (OXY) has 13 Wall Street analysts offering 12 month price targets in the last 3 months. The average price target is $75.38 with a high forecast of $93.00 and a low forecast of $63.00. The average price target represents a 10.51% change from the last price of $68.21.

But just because you’ve heard of a stock or a company mentioned above doesn’t necessarily mean it’s a good investment. 

This is where the team at VJ equities comes in.

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