By Heard Editors
On Wednesday investors got to digest some of the most accurate and forward-looking signals about the health of the U.S. economy.
Later on, Fed Chair Jerome Powell even made some comments.
Quarterly results from Starbucks sent its once-hot stock into a tailspin about as bad as the day that it became clear the Covid-19 pandemic would shut down its stores. American consumers' willingness to pay an 80% markup for foamy brown water once knew no bounds. But during the quarter ended in March they finally balked, either flocking to cheaper competitors like Dunkin' or (gasp) making coffee at home.
There was a 7% drop in U.S. transactions compared to the same period a year earlier. The picture was even worse in China, which Starbucks hopes will become its biggest market soon. There was only a 4% drop in transactions but also an 8% drop in average ticket for a combined 11% decline in same-store sales. The new-ish CEO's action plan, Triple Shot Reinvention With Two Pumps, no longer has analysts sold for some strange reason.
If it were just a Starbucks problem then that would be one thing, but there were signs from a number of fast-food companies this week, including McDonald's, that lower-income consumers are feeling the heat from interest rates, depleted pandemic savings and inflation. Similar comments were made about restaurant sales by Kraft Heinz as it looked to be lapping a cut last year to food stamp benefits. And now even the somewhat higher-income customers at Starbucks seem to be cutting back on indulgences.
It wasn't all gloom in Seattle. An even larger company based in the drizzly city had reassuring news for investors. Though it is spending heavily on AI infrastructuresomething that sent shares of Meta tumbling last weekAmazon is generating so much cash that investors took it in stride. Its stock rose by 2.3%.
Investors were initially fairly relaxed about the day's other big piece of news, the Fed decision. As expected, the central bank kept rates unchanged. It slightly toughened its rhetorical level of alertness about inflation but slowed the rate of quantitative tightening, or QT, a bit more than expected. Traders yawned at first, but then Powell's comments in the press conference sent stocks surging.
The Dow Jones Industrial Average jumped by as many as 568 points from its low to its high during the session. It ended up by just 87 points after a late-day reversal, though. Even that was largely because of component Johnson & Johnson's steps to settle lawsuit related to talc alleged to have caused cancer.
The Benchmark S&P 500 and the tech-heavy Nasdaq Composite each lost about a third of a percent after being much higher late in the afternoon.
This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here_._
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(END) Dow Jones Newswires
May 01, 2024 17:30 ET (21:30 GMT)
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