Strike talk fueling bearish trades?

  • Put volume in CSX, UNP elevated as strike deadline nears
  • Both stocks fell sharply in early trading Wednesday
  • Contrarian pattern apparent in some previous labor disputes

(Update: Thursday, September 15, 9 a.m. ET: A tentative deal to avoid the strike discussed below was announced early Thursday.)


The presence of two railroad stocks on Wednesday’s scan for unusual put volume highlighted an important story that may have gotten overshadowed by Tuesday’s inflation data and stock sell-off.

Both CSX (CSX) and Union Pacific (UNP) had put volume that was at least three times average yesterday morning, while both stocks were down at least 3% in early trading:

Chart 1: LiveAction scan: Unusual put volume, 9/14/22. Unusual options activity. Railroad puts in play.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

These moves occurred against the backdrop of a possible nationwide rail strike that could begin as early as tomorrow, which would impact both freight traffic and commuter railways that travel on freight lines.1

The potential economic fallout is real. Railroads are responsible for moving roughly 30% of US freight2—and any disruption to that service would be significant even in an economy that wasn’t still grappling with supply chain issues, as this one is. That said, the historical record suggests there is sometimes a disconnect between the prospect of strikes and how they actually play out in the markets.

Last year, roughly 10,000 employees went on strike at Deere (DE) on October 14, and the contract dispute at the center of the conflict was resolved around a month later on November 17:

Chart 2: Deere (DE), 9/7/21–11/18/21. Deere (DE) price chart. Bottomed on day strike started.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

As the chart shows, DE shares declined in the weeks leading up the strike date—when the threat of the walkout was making regular headlines—and rallied after it. In fact, DE closed higher the day the strike started, pivoting off a multi-month intraday low. (Just as counterintuitively, the stock dropped sharply the day the strike ended.)

The only nationwide rail strike in the past 50 years paints a similar picture. Here’s how CSX performed shortly before and after workers went on strike on June 24, 1992:

Chart 3: CSX (CSX), 6/4/92–7/13/92. CSX (CSX) price chart. 1992 railroad strike.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

In this case, the beginning of the walkout was very close to its end, as Congress and the White House passed emergency legislation two days later to end the strike and force arbitration.3 But the same pattern prevailed—more weakness leading up to the strike than after it.

These two examples don’t mean this episode will play out the same way. The current labor dispute has its own dynamics amid unique economy and market conditions. But they illustrate how markets will often price in (and overshoot) perceived threats in advance, only to reverse after the event comes to pass.

In a way, it’s a twist on the “Buy the rumor, sell the news” adage—maybe, “Sell the apprehension, buy the event.”

Today’s numbers include (all times ET): Weekly Jobless Claims (8:30 a.m.), Retail Sales (8:30 a.m.), Empire State Manufacturing Index (8:30 a.m.), Import and Export Prices (8:30 a.m.), Industrial Production (9:15 a.m.), Business Inventories (10 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Adobe (ADBE).


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1 Washington Post. Freight rail strike threatens supply chains, prompting White House planning. 9/13/22.
2 Railroad strike, and the economic damage it would cause, looms closer. 9/14/22.
3 Los Angeles Times. President Signs Bill to End U.S. Rail Shutdown. 6/26/92.

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