What We Learned This Week

Bad News May No Longer Be Good News: Over the past 18 months unfavorable economic news often translated into positive signals for the stock market. This was primarily due to the implication of potential relief in inflation and a reduced need for the Federal Reserve to implement stricter monetary policies. However, recent developments suggest a potential shift in this dynamic. This week, we encountered softer economic data, particularly in labor numbers, indicating a less robust business environment.

Companies like Spotify and McKinsey announcing layoffs further underscore a softer landscape, hinting at lingering effects from post-pandemic overhiring and exaggerated growth expectations. Additionally, oil prices have dipped to five-month lows. While a few months ago, such occurrences might have been received positively by the markets, they are now met with a slightly negative reception. It appears we may be reaching a point where sentiment is transitioning from a focus on slowing down, to concerns about having slowed down too much.

Uber Getting Added to the S&P 500: This news provided a stock boost, driven by the anticipated rebalancing by tracking funds. This move signifies positive company fundamentals and standing. Notably, S&P inclusion requires a company to have posted positive earnings in the previous quarter and sustained positive earnings over the last four years. However, it's crucial to note that stock moves based on such news may not necessarily reflect the company's current-day fundamentals (i.e., doesn’t sell more rides).

McDonalds Leaning on Store Growth and Loyalty Programs: At McDonald's investor day, the company outlined plans for significant store growth, aiming to add 9,000 locations globally. The focus includes 900 additional stores in the US, primarily in the south and southeast regions. McDonald's also aims to boost its loyalty program, targeting 250 million members by 2027. This strategic approach leverages customer spending patterns and provides valuable insights into consumer behavior, aiding adaptation to changing tastes and trends.

Proposed Hawaiian and Alaska Airlines Merger: The potential increase in consumer prices, resulting from the combined entity gaining scale over west coast routes, is expected to draw attention from government antitrust departments—especially given the current administration's inclination to scrutinize deals that diminish competition. It will be interesting to monitor the response to this merger, as it carries implications for both consumer costs and potential antitrust concerns.