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Monday Morning Stock News Alert: No U.S. Stagflation

Last week, stock markets absorbed two key data points. First, the FOMC announced no change to interest rates. At the press conference, Fed Chair Jerome Powell said that he did not see “the stag or the (in)flation.” Without stagflation risks, stock markets have nothing to worry about.

The less-than-hot job report released last Friday is the second, less meaningful data point. The U.S. government hired fewer workers, leading to a weaker job hiring report.

No Stagflation

Powell’s comment of not seeing stagflation contradicts an earlier report that Q1 2024 GDP slowed while core price consumption expenditure, which measures inflation without energy and food, rose. The Fed’s dismissal of stagflation contradicts the weakening consumer confidence index. This index fell for three straight months.

Investors continue to avoid corporations that rely on strong consumer confidence for profit growth. They sold Starbucks (SBUX) since last Nov. 2023 at over $105. Shares closed at $73.11, down by 17.16% in the last week in response to the weak quarterly report and guidance.

McDonald’s (MC0D and Chipotle (CMG) avoided the sell-off. Along with Domino’s Pizza (DPZ) and Restaurant Brands (QSR), investors are buying restaurant firms that are immune to stagflation.

Your Takeaway

Keep watching U.S. bond yields. Yields may cross above 5.0% again, indicating the market’s expectations that inflation will persist in the economy.