McDonald’s (NYSE:MCD), once just a fast-food giant, has become more than that—it has become a lens through which we can observe economic and geopolitical dynamics. While some economic theories tied to McDonald’s have held strong, recent events have challenged others.
One theory centers around the Big Mac sandwich, suggesting that its price can indicate “what currencies are overvalued compared to the U.S.” With a focus on the U.S. dollar index and its bullish indicators, experts argue that the Big Mac serves as an international barometer of economic activity.
Another theory, known as capitalist peace, asserts that “no two countries that both have a McDonald’s have ever fought a war against each other.” However, this theory has faced challenges, particularly in light of Russia’s invasions of Ukraine, where McDonald’s has a presence in both nations.
An alternative theory concerning McDonald’s relates to its performance during economic downturns. It posits that when US consumer confidence is low and the economy is struggling, McDonald’s tends to thrive as people seek comfort in affordable comfort food like burgers. This idea finds support in the historical example of McDonald’s remaining resilient during the financial crisis from October 2007 to March 2009, while the Dow Jones Industrial Average plummeted by 54%.
However, examining the long-term monthly chart for McDonald’s reveals a bearish spike reversal during July, confirming a shift into a long-term downtrend. This was followed by a new 4-month low in August, as the stock fell below the previous mark of $280 set in June. The stock continued to slide in September, reaching a low of $267.44. The threshold for entering bearish territory is typically a 20% drop, which would place it at $239.55, with the 33% retracement zone around the significant level of $200.
So, what does McDonald’s downward trajectory imply about the US economy? Could this signal a strengthening economy, as per the alternative theory? The September consumer confidence number, which dropped to 103.0 from August’s 108.7 and marked a new 4-month low, raises questions about ongoing concerns regarding higher interest rates, inflation, and potential government shutdowns.
Furthermore, another economic indicator, US boxed beef prices, shows signs of increased worry. Although prices remain relatively high, the monthly close-only chart suggests a potential topping pattern. Should this trend continue and boxed beef prices start to decline, it could indicate a softer phase for the US economy.
However, this doesn’t necessarily mean it’s time to rush into buying McDonald’s stock despite the bearish technical indicators. The prevailing sentiment leans towards a stronger US economy, albeit with its share of challenges.
In conclusion, McDonald’s continues to provide insights into the economic landscape, but interpreting these signals requires a nuanced understanding of various factors influencing the market.
Featured Image: Unsplash @ Hillshire Farm
