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.
- 2024 started off with a big spike (+16%) in the VIX fear gauge during January which is not surprising given all the neocon calls for war with Iran. The resultant global flight to safety was evident by a declining 10-year treasury rate (see chart below) and an increasing US$. Conversely, we see weakness in less secure asset classes, including small cap stocks (Russell 2000) and the vulnerable emerging markets.
- QSR stock performance was mixed with big gains from Potbelly which was upgraded by an analyst to a buy recommendation in the middle of the month with a $15 price target and Carrols (BK franchisee) which has agreed to be acquired by its franchisor Restaurant Brands International. Growth investors continue to reward Wingstop, CAVA & Chipotle which standout in a challenging consumer economic backdrop.
- Full-serve restaurant stocks started to give back big 2023 gains during January because of concerns that cash strapped consumers would trade-down (to fast food) & trade out. Please refer to our recent post outlining FSR challenges as described by a large multi-unit operator and Amazon’s good idea of how to improve the FSR experience.