The Weekend Edition is pulled from the daily Stansberry Digest.
In western Massachusetts, just off the turnpike...
Near the border of Massachusetts and New York, you'll find America's most expensive Big Mac in a service plaza off Interstate 90. The signature McDonald's (MCD) sandwich costs $8.09 there.
That's more than double what it costs on Main Street in Stigler, Oklahoma – where you'll find the cheapest Big Mac in America for $3.49. The national average is $5.69, according to the Economist's "Big Mac Index."
Now, McDonald's prices – like inflation – vary depending on where you live, local prices of real estate and gas, and interest rates, along with other cost inputs and who's making decisions.
It's part of the franchise model that makes McDonald's so successful... The company owns or leases most of the land its restaurants operate on, and it charges franchisees rent and royalties as they handle day-to-day business.
But I'm not bringing all this up to point out the long-term strength of McDonald's franchise model.
It's to talk about inflation, the topic of the day in the markets (again)...
While prices vary depending on location, Big Macs in America today are much more expensive than they were just a few years ago... more than 20% on average since the pre-pandemic era.
As the days go on, we can say this with even more confidence...
It turns out the consequences of pumping trillions of dollars of stimulus money into the economy during the pandemic, coupled with ultra-easy monetary policy, take a long time to wear off in a $28 trillion economy. It's certainly taking longer than Wall Street expected.
The pace of inflation is off its 40-year-high peak, but the disinflationary trend is still volatile because of "sticky" high housing prices and volatile energy prices that are, in part, tied to geopolitical risks.
That's why the Federal Reserve's interest-rate cuts will likely come later than Wall Street was anticipating... and some market repricing could be in order.
After all, 2023's rapid year-end rally appeared to be based largely on the expectation that the Fed would cut rates to juice the economy early this year. Today, that looks increasingly less likely.
An economic bellwether...
Last month, McDonald's reported what some analysts described as a "mixed" earnings report for fourth-quarter and full-year 2023. Same-store sales showed growth over both periods and were a remarkable 30% higher than in 2019.
But it was McDonald's CEO Chris Kempczinski's comments about inflation that caught my attention... because of what they say about the near-term direction of U.S. markets and the current state of the economy.
As industry publication Nation's Restaurant News reported...
In the U.S., McDonald's is navigating transaction reductions from its lower-income consumers making $45,000 and below. Kempczinski noted that these consumers are likely opting to eat at home as grocery/supermarket inflation has cooled faster than food-away-from-home. The company is focused on re-engaging these customers this year.
"The battleground is with the low-income consumer. What you're going to see is more attention to affordability. Think about that as an absolute price point, which is more important for that consumer to get them into the restaurants than maybe value messaging," Kempczinski said. "We are set up well to go after that; we have our Dollar 1, 2, 3 platform. There will be some activity at the local level to make sure we continue to provide value for the lower income consumer."
This is an economic bellwether... A growing number of lower-income customers are staying away from McDonald's. They don't see the value. Prices are too high compared with food available elsewhere.
To be clear, rising prices aren't a bad thing for McDonald's...
There's a reason McDonald's can charge $8 for a Big Mac. It's because demand is there. And it can take advantage of that demand in more than 40,000 McDonald's locations... across more than 100 countries.
McDonald's is still attracting enough customers with enough money that the company is seeing overall growth (for instance, the roughly 10% annual rise in same-store U.S. sales). It has also managed its costs effectively and weathered the need for wage increases to find and hire workers.
McDonald's has "pricing power," a massive reach, and importantly for investors, a long, storied history of growth and rewarding shareholders. McDonald's generates billions of dollars per year in free cash flow and has raised its shareholder dividend every year since 1976.
Businesses that can raise prices with confidence and continue to reward shareholders are precisely the type of recession- and inflation-proof companies that should be part of every long-term investment portfolio.
However, here's the main takeaway...
While you might hear that "inflation is dead" from some sources (not here), it's still high enough in the U.S. to be at the forefront of the business strategy for massive companies like McDonald's.
Prices aren't rising as fast today as they were previously. But things are still expensive, and your dollars are still being devalued.
We also saw this in the latest inflation data...
Fresh economic data released Thursday all but confirms that the Fed will hold rates steady at its next meeting in March...
In January, the Fed's preferred gauge of underlying inflation rose at the fastest pace in nearly a year. Core personal consumption expenditures ("PCE") came in as expected, showing a 0.4% increase from December.
That "core" PCE number leaves out volatile food and energy data. And it was the biggest rise on a monthly basis since January 2023.
On an annual basis, though, core PCE rose 2.8%. That reading was in line with estimates, and it continued the late 2023 inflation downtrend (from 3.4% in October to 2.9% in December).
Services inflation (the prices of things like hotel stays, child care, or hiring a plumber) remains "sticky"...
This metric saw its largest increase since March 2022, rising to 0.6% month over month. And overall services spending continued to rise, highlighting higher prices for housing, utilities, and health care.
The data also showed some signs of a weakening economy...
Inflation-adjusted spending dropped for the first time in five months.
Additional data released Thursday morning also revealed an uptick in unemployment applications... and a rise in continuing unemployment claims to their highest level since November.
The odds, the action, and what to watch next...
Overall, the highly anticipated PCE readings have further cemented Mr. Market's expectation that the Fed will hold off on rate cuts until later in the year.
The CME Group's FedWatch tool shows 95% odds of a continued Fed "pause" in March as I write. Fed-funds futures traders aren't betting significantly on rate cuts until the central bank's meeting in June.
Any change to the Fed's federal-funds rate range this month would come as a big surprise given the stickiness of recent inflation data, even as the longer-term trend of the pace of inflation is down.
However, a couple of dominoes are yet to fall... and they could stoke some volatility. The February jobs report, with an updated unemployment rate, comes out next Friday. The next consumer price index report, covering February, will come out on March 12.
While we don't expect either report to change the Fed's March decision, they will likely affect the Fed's forward-looking statements at its meeting a week later.
Finally, don't miss this election-year briefing...
On Thursday night, our friend Marc Chaikin, founder of our corporate affiliate Chaikin Analytics, went live with a brand-new free presentation you don't want to miss.
In short, Marc says we're about to see a critical election-year event.
Few have studied how political events can influence the stock market like Marc has over his career, which dates to the 1960s... when Marc came up with the early forms of technical indicators many on Wall Street still use today.
Even fewer market veterans have the ability and willingness to share the important details with everyday investors. But Marc has made a habit of it since he founded Chaikin Analytics more than a decade ago, after seeing so many folks burned by the great financial crisis.
Over the past few years alone, Marc warned about the broad market sell-off in 2022... then encouraged folks to get more bullish later that year, another prescient call... and he predicted a "run on the banks" in 2023. We didn't see anyone else do that.
Prepare for a Super Tuesday shocker...
During his broadcast, Marc shared details about an election-night "surprise" that he has tracked with 90% accuracy using his Power Gauge tool.
This market event doesn't have anything to do with who wins or loses in November. Instead, it's about the unique nature of election years...
Without giving too much away, Marc says he expects an event to blindside unsuspecting investors in the days surrounding Super Tuesday. That's coming up in just a few days, when primary voters in 15 states and one territory will head to the ballot boxes on March 5.
So, don't wait to check out the replay video. You'll want to hear what Marc has to say...
Marc even shared his top buy and sell recommendations for 2024 – 100% free of charge.
Those might be worth tuning in for alone. Last year, he issued similar free recommendations when he shared his 2023 market forecast. Anyone who followed his advice could have seen a 52% gain in Netflix (NFLX)... and avoided a nearly 60% loss in Tesla (TSLA).
Now, Marc is doing it all over again. You can get these company names and tickers for free if you catch his election briefing... along with a whole lot more. Watch the video right here.
Good investing,
Corey McLaughlin
Editor's note: If you're concerned at all about inflation, the economy, and what's next for the market, you need to hear Marc's announcement... and the specific stocks he's highlighting now.
As he revealed on Thursday, the reason behind last year's bull run is a much bigger story than anyone realizes. It's still at work today. And it's part of the critical "surprise" that Marc sees heading for U.S. stocks in the days following Super Tuesday.
Most Americans are completely missing this setup... But if you know what's coming, it could mean a chance at multiple 100%-plus gains in 2024. So don't miss Marc's dead-simple blueprint for protecting and building your wealth in what could be a volatile election year... See the video for the full details here.
