Tue, June 4, 2024 at 7:07 PM GMT+9

Fast food stocks have been, well, ice cold.

The Street has really soured on the likes of McDonald's (MCD), Restaurant Brands (QSR), Yum! Brands (YUM) and many others in recent months amid sticky inflation and new $5 price wars.

In short, there is just no catalyst in place to drive the stocks higher in the near-term.

This was underscored by EvercoreISI analyst David Palmer this morning, who has cut his same-store sales estimates for the aforementioned names.

I wanted to highlight two sections of interest from his report:

"US drive-thru chains are experiencing weakness across most income groups, but the weakness is most pronounced with households earning less than $50,000/year. This cohort is benefitting less from rising asset prices and suffering more from higher interest rates. Lastly, it is these consumers that most experience the regressionary tax of inflation itself with 30%+ COVID-era food cost inflation combining with the higher restaurant meal costs (over 4x higher than at-home prepared) to create an affordability problem. In addition, increased media and social media scrutiny of fast food pricing has added to pressure on McDonald’s, in particular."

"In the past, compelling value menus were often anchored by a hero item — often viewed by the consumer as a loss leader. These included the $1 double cheeseburger (McDonald’s 2003- 2012), the $1 any size soft drink (McDonald’s 2017-2020), the $5 footlong (Subway), the $5 mixand-match (Domino’s), and the $1.50 hot dog (Costco). The question of the day — will a $5 bundle be enough to stabilize McDonald’s traffic and will the higher food cost of the meal prove worth it enough to keep around the rest of the summer (or longer)? If the $5 meal is not a long-term solution, will a BOGO $1 menu do the trick for McDonald’s? We suspect the answer will come in the advertising effectiveness — will it leverage McDonald’s $1 billion national advertising budget? Should McDonald’s be able to stabilize traffic with value in 3Q the steady stream of new products in 2H24 and 2025 should kick off a substantial brand recovery."

Tue, June 4, 2024 at 6:53 PM GMT+9

And I awake to a 16 page research report on stocks from Goldman Sachs. Great train reading.

Good point by their team on stocks:

"However, given the rise in valuations, and the recent corresponding rise in investor sentiment, equities are more vulnerable to disappointments. Stocks have largely, so far, shrugged off the delay in interest rate cuts because growth has been holding up — cyclical sectors of the main markets have been outperforming defensives leaving them exposed to any signs of economic activity faltering (particularly around the labour market)."

Tue, June 4, 2024 at 6:47 PM GMT+9

While Nvidia (NVDA) CEO Jensen Huang gets all the attention, his long-time CFO is also important to track if you are invested in the name.

Colette Kress has been Nvidia's CFO for ten years, and is viewed in Wall Street circles as one of the best in the game.

Citi got to spend time with her this week and is out with a note. I think what they said below (based on their meeting with Kress) is of interest, and a little discussed demand driver for the company.

"Sovereign AI demand is strong in various parts of the world. In Europe, Nvidia is seeing some work being done by countries such as France, Germany and Italy, with France leading the way. The Middle East is also an area investing heavily in AI. It is also the case in South East Asia. Nvidia clarified that not all investors are directly tied to the government. Some entities are just government-backed, not owned. In general, sovereign AI clients already have specific use cases to use their products for. Generally speaking the entities look to build models based on their own characteristics."

Tue, June 4, 2024 at 6:40 PM GMT+9

I have no problem with strategists making bold calls as long as they are rooted in reality.

I think that's what we are getting from Stifel's Barry Bannister this morning.

Bannister says he is looking for a 10% correction in the S&P 500 to about 4,750, occurring between the second and third quarters.

Why:

• "Sticky (and slightly higher) inflation in the second half of the year, starting early 3Q24E."

• "No Fed rate cuts in 2024, despite sluggish cyclical economic growth."

• "S&P 500 price to earnings ratio to decline about 2 multiples (about 500 points) by the end of the third quarter."

Below is what Stifel's CEO Ron Kruszewski told me about the Fed and markets recently.

Tue, June 4, 2024 at 6:33 PM GMT+9

GameStop (GME) shares are flat-lining in the early going today after a 21% pop (well off the 103% gain seen around the open...).

I think my long-time markets go-to Steve Sosnick from Interactive Brokers said it best to me via email on the move here:

"It can’t be explained by normal, rational means."

Be careful here folks chasing this one.

Some coverage of GameStop mania this week from Yahoo Finance:

• Why the GameStop trade remains frothy and risky. Via Seana Smith.

• Is 'Roaring Kitty' taking advantage of retail traders? This is an interview with noted short-seller Andrew Left. Via Julie Hyman.