Stocks rebounded today with investors waiting for several key events, including the Federal Reserve’s impending policy decision and Apple’s earnings report.
The S&P 500 surged by approximately 0.7%, recovering from its recent dip into correction territory. The Dow Jones Industrial Average followed suit, leaping by about 0.8% or over 250 points, especially notable after its previous 350-point drop. Meanwhile, the Nasdaq Composite, predominantly tech-focused, also rose by around 0.8%, attempting to shake off the previous week’s downturn influenced by mixed Big Tech earnings.
Market participants are now setting their sights on the US central bank and Apple, the S&P 500’s heavyweight, hoping for a morale boost after a challenging period for equities. The upcoming US jobs report for October is also drawing attention.
Recent spikes in the Fed’s favored inflation metric have led to speculation that the central bank will maintain its “higher for longer” approach, keeping interest rates unchanged in their Wednesday decision. Apple is slated to unveil its quarterly results post-market on Thursday, with potential repercussions from China’s restrictions on iPhone usage garnering interest.
Today’s spotlight also shone on McDonald’s earnings, offering insights into the resilience of the US consumer amidst elevated borrowing costs. The fast-food leader surpassed third-quarter earnings expectations, propelled by increased menu prices enhancing sales growth. Global systemwide sales, encompassing both company-owned and franchised outlets, rose by 11%. Impressively, same-store sales soared by 8.8%, outpacing the anticipated 7.79%.
McDonald’s CEO and President, Chris Kempczinski, remarked, “The macroeconomic environment is unfolding in line with our expectations for the year, and we continued to deliver convenience and value for our customers.” Despite these positive figures, McDonald’s shares have declined by nearly 3% this year.
In the US, McDonald’s attributed its sales boost to elevated menu prices, innovative marketing campaigns, and a surge in digital and delivery orders. Kempczinski highlighted a minor dip in traffic from low-income consumers but emphasized the brand’s growing appeal to middle and high-income demographics.
Baird analyst David Tarantino observed that McDonald’s often witnesses increased foot traffic during periods of “mounting macroeconomic uncertainties,” deeming it well-equipped to navigate challenging backdrops.
Digital sales, encompassing app-based, delivery, and kiosk transactions, reached a staggering $9 billion across its six primary markets, accounting for 40% of total sales. Kempczinski emphasized the brand’s burgeoning digital presence, noting its potential to unlock numerous opportunities and pose challenges for competitors.
Today’s earnings report showcased McDonald’s revenue at $6.69 billion, surpassing the projected $6.52 billion. Adjusted earnings per share stood at $3.19, marking a 19% year-on-year increase. The company also disclosed pre-tax charges of $26 million for the quarter, mainly linked to its restructuring plan initiated in early April. An investor update is scheduled for Dec. 6, where further details about its 2024 outlook will be shared.
McDonald’s better-than-expected quarterly results suggest that the average consumer is still relatively strong. On the other hand, a dip in lower-income traffic also may indicate that less affluent Americans are feeling the heat of inflation to the point at which they’re being priced out of fast food, something that used to be famously cheap and affordable.
The McDonald’s earnings, which could be viewed as a hawkish impulse, were ultimately overpowered by sliding oil prices following Israel’s weekend incursion into Gaza. Oil bears were happy to see that the attack didn’t provoke a response from neighboring countries, and given that the appetite for fighting on both sides has started to wane, we may be past a fear-driven oil peak.
Overall, though, today’s rebound seems like more of a reaction after a week of brutal S&P selling than anything else. The real action starts tomorrow afternoon when Fed Chair Powell delivers his post-FOMC remarks, which have the potential to either “make” or (further) “break” the market.