The market & restaurant stocks struggled in January, reflecting: fears that an unpopular Middle Eastern war is expanding beyond Gaza, dragging U.S. soldiers into harm’s way; Powell’s unwillingness to cut rates in March even as the U.S. economy languishes; and concerns that continued evidence of consumer weakness could harm restaurant traffic & sales.
2023 was a good year for Bitcoin, stocks and a bad year for interest rates, the US$ & the VIX fear gauge. To be fair, seemingly strong 2023 performance really was nothing more than a bounce-back from 2022’s dismal declines. Regarding restaurant performance, the strongest stocks were those resurrected from a seemingly sure covid induced death. Oh, and Wingstop… What does 2024 have in-store for us?
Lower commodities bolster 2023 company unit margins
Powell’s recent speech suggests that rate hikes are still on the table even though the Philadelphia Fed’s economic projections suggest that a rate cut may make more sense. Powell further indicated that there is generally a lag to the effects of monetary tightening, suggesting that these projections could be optimistic.
During October, the S&P 500 declined -2.2% & the Russell 2000 (small caps) was down nearly -7%. The good news is that Bitcoin was up almost +30%! There is a lot to worry about given all the war mongering around the world, with a growing number of hotspots that adds the Middle East to the Ukraine & Taiwan. There is also growing consternation about the porous U.S. southern border and we got a new Speaker of the House who has got right to work on lining-up billions to ship overseas. Did we forget to mention that the 10-year yield made a big move higher during October & actually had the temerity to test the forbidden 5% red line.
Recent restaurant stock weakness reflects investor concern about slowing industry traffic & increasing consumer weakness, points recently addressed by General Mills.
The Philadelphia Fed is forecasting +1.9% real GDP growth for 3Q23 which is significantly lower than the Atlanta Fed’s +5.9% GDPNow forecast.
2Q23 Unit Level Margins Improving.
Despite an increase in the Consumer Confidence Index in July to its highest level since July 2021, it seems that consumer strength is generally softening.
Macro trends are generally looking up, with the major banks passing their stress test, the labor market hopefully headed for a soft landing and inflation cooling.