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Kevin Cook here for Reity while he takes the kids to Yosemite...
McDonald's dropped 4.5% Tuesday after reporting worse-than-expected sales. But even before that quarterly miss, Stifel Nicolaus fired a warning shot about the state of the restaurant industry. And they aren't just worried about the eateries.
"We confidently believe that a Q2 sales slowdown across all categories reflects the start of a restaurant recession -- which may also represent a harbinger to a national recession in early 2017."
In their "decidedly bearish" call yesterday morning, the investment bank said that slowing restaurant sales are the "canary that lays the recessionary egg."
One Culprit: Higher Labor Costs
The analysts noted that the restaurant industry has led the market lower during the 3-to-6-month periods prior to the start of the last three US recessions. They downgraded 11 stocks, including putting "sell" ratings on Chipotle, Darden, Panera and Cheesecake Factory.
The Stifel call is not solitary. Jefferies analyst Andy Barish (no pun intended) also downgraded multiple restaurant chains on Tuesday saying he was "calling the top of the restaurant cycle" after an extensive study suggested that the "industry has at least 18 months of challenges ahead."
Bottom line: Restaurants may indeed be the canary but we won't know for sure without more economic data and earnings from other industries like those related to housing. One thing we do know for sure: the Fed will stay "easy for longer" given the data we do have.
Best,
Steve Reitmeister
Executive Vice President, Zacks Investment Research
On December 18, 2015, President Obama quietly signed a bill that gives 119 million eligible Americans the chance to collect on "consumer rebate checks" that could go anywhere from $1,230 to $12,900 for some people. There are no income requirements to collect.
Defense stocks are locked and loaded for earnings season this week. We have two of the sector's most important players, Boeing (BA) and Raytheon (RTN). Which of these aerospace and defense giants is looking more promising heading into earnings? Read More »
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