The Rundown - McDonald's E. coli Outbreak Drags Down Shares, Starbucks Pulls Guidance

Episode Date: October 23, 2024

Stock market update for October 23, 2024.

Public.com presents the rundown. Your daily market update in five minutes. My name is Zadadmani, and today is Wednesday, October 23rd. In today's episode, we preview Tesla's earnings and tell you what metrics Wall Street will be paying very close attention to. Then we dive into Starbucks's poor results and tell you what the company plans to do to turn things around. Also, McDonald's is dealing with an E. coli outbreak. We'll recap that situation and tell you how the markets are reacting. Then stick around to the end of the show to find out why Spirit Airlines shares keep soaring. My Goldman Sachs thinks the good times might be over for the S&P 500. All right, let's go. We had a pretty flat day for the markets on Tuesday. The S&P technically was down 0.05%. So yeah,

essentially flat, but over 300 companies did finish in the red. The NASDAQ, on the other hand, did squeeze out a gain of 0.2%. Tesla reports earnings after the closing bell today. A lot is writing on this report. Wall Street will be paying close attention specifically to Tesla's margins. Tesla has been running a ton of promos and price discounts lately, which could be impacting their margins. So that's something to keep a close eye on. And then on top of that, I'm sure investors want some strong guidance from Tesla as well. So we'll see what the numbers are this afternoon. And I feel like the pressure is on even more this time because the Tesla's disappointing Robotaxi event a couple weeks ago. Their stock dropped more than 7% after that event and it never really recovered. So we'll see if these

earnings will bring some energy back into the stock. Earnings drop after the bell today, so we'll be recapping the numbers and the market reaction in tomorrow's episode. Let's run through some headlines. Let's start with Starbucks. Starbucks came out with preliminary earnings yesterday, and the numbers don't look so great. Starbucks said that their same store sales dropped by 7% last quarter. That would be the third consecutive quarter where they've seen a drop in sales.

So that's not great. Starbucks pointed to a slowdown in North America where they saw their traffic. traffic dropped by 10%. And things weren't so great in China either. They saw their sales drop by 14% over there. Now remember, Starbucks has a new CEO now. Brian Nicol, he took over the company last month coming over from Chipotle. And he's supposed to be the savior of the company. In fact, the day that he was announced as CEO, Starbucks stock jumped over 20%. He actually posted a video yesterday talking about the challenges Starbucks faces, saying that the company will fundamentally change their strategy, including their marketing, to get Starbucks back to growth.

He even has a name for this plan, calling it back to Starbucks. I mean, I know that everything has to have a name these days, but not a great name. Brian Nichols said that he'll provide more details next week during their earnings call. Starbucks officially reports earnings on October 30th, so we should get more details on their turnaround plan then. But I think one thing is pretty clear. It's going to take some time to turn the company around. Like, you know things are really bad when companies are out here dropping preliminary reports about how bad their numbers are. Investors are definitely starting to get nervous.

shares of Starbucks are down close to 4% in reaction to these numbers. Now, shifting gears talking about a company that has overrated coffee to a company that has underrated coffee, McDonald's is making some news this morning. Kind of a bumpy transition there, but I think I landed the plane. And yes, I said it, McDonald's, underrated coffee. Well, might not be a good time to go to McDonald's right now. They have an E. coli outbreak, according to the CDC. The outbreak seems to be connected to McDonald's quarter-pounder, which has led to a total of

49 reported E. coli cases in the U.S., including 10 hospitals. and one death. So it is pretty serious. So far, 10 states have been affected, all of them in the Western U.S. McDonald's believes that the E. coli problem might be coming from the onions used on the quarter pounder. McDonald's said that are moving the current supply of those onions, going so far as to taking the quarter pounder off the menu in the affected states in the U.S. until the situation is fixed. Investors aren't taking any chances right now. McDonald's shares are down 6% on this news. Let's hope that this is not another Chipotle situation. I don't know if you guys remember this, but Chipotle went through an E. coli outbreak back in 2016.

I remember that pretty well. People were legit afraid to go to Chipotle, and it actually impacted Chipotle stock pretty significantly. Their stock dropped 37% in the few months following that outbreak. And mini fun fact, Brian Nicol became the CEO of Chipotle in 2018 and ended up turning around Chipotle to become the second largest restaurant chain by market cap today. Second only to McDonald's. So it all ties together.

Let's talk about some stocks making moves today. And we got to start with Spirit Airlines. Their stock is flying again this morning after the Wall Street Journal reported that Frontier Airlines is thinking about buying Spirit again. See, Spirit and Frontier have had merger talks going all the way back to 2016. A deal almost got done back in 2022

for $2.9 billion. But then JetBlue sweeped in to offer Spirit a better deal, which they accepted. But then the DOJ ended up blocking that JetBlue deal because they thought that it was anti-competitive and would hurt consumers. Well, fast forward today, Spirit Airlines is nearly bankrupt.

So now Frontier Airlines is thinking about sweeping back in and buying them out. Honestly, it kind of worked out for Frontier because I doubt they'll be paying $2.9 billion. Now, no formal announcement has been officially made, but that didn't stop investors from buying Spirit stock. Shares are up more than 20% this morning off the backs of this report. And man, Spirit stock has been flying high the past few days. It's almost doubled since last Thursday. On the flip side, shares of Qualcomm are dropping this morning after the company received a notice from Arm

blocking Qualcomm from designing chips based on ARMS technology. See, Arm has a ton of intellectual property in patents regarding chip design, and Qualcomm licensed some of ARMS technology to build their own chips. But now these two sides are beefing. In fact, Arm filed a lawsuit against Qualcomm back in 2022 for a breach of contract. And now they just escalated this beef by giving Qualcomm a 60-day notice that they're canceling their licensing agreement. I'm not going to act like I fully understand the technicalities

stuff, but this sounds like it could be a big deal. Because Qualcomm makes a ton of chips for smartphones, and they use arms technology to make those chips. So we'll see what happens, but investors definitely seem to be a little spooked out. Qualcomm shares are down 5% this morning. Let's wrap the show with a fun fact. The S&P 500 has had a good run lately. I'm not just talking about this year, but over the last decade, the S&P has returned 13% annually. And historically, going back over 50 years, the S&P has returned around 10%. Well, Goldman Sachs thinks the good times might be over. Goldman expects the S&P to only return about 3% over the next decade.

That's a bummer. In fact, they're so down on the markets that they think there's a 33% chance. The S&P lags inflation through 2034. Now, the reason for Goldman's bummer outlook is because of big tech companies. See, big tech companies have been the main driver of the crazy returns we've had in the S&P 500 over the last decade or so. You know, companies like Apple, Microsoft, Amazon, Google, Nvidia these days, they're the main reason why the stock market has seen insane growth.

But Goldman doesn't think that these big tech companies will be able to sustain this growth moving forward. And that's going to keep returns low for the markets overall. Honestly, not a bad theory. I don't necessarily agree with it, but I can see what they're saying here. But again, this is just Goldman's perspective. And not everyone on Wall Street agrees with this. In fact, JP Morgan came out this week saying that they expect large cap stocks to return over 6% annually. over the next 10 to 15 years.

So, you know, no one really knows what's going to happen. Even these Wall Street guys, we're all just making guesses here. I mean, time and time again, though, the best strategy has been to buy and hold. Well, all right, guys, that's the rundown for today. Hope you guys enjoyed today's episode. Remember, tomorrow's episode will be diving into Tesla's earnings report. Those are always fun and full of drama. So make sure you guys tune in for that.

And if you guys enjoyed today's episode, consider giving us a five-star rating on Apple and Spotify. And if you have like 15 more seconds, consider leaving us a comment on Spotify. Spotify as well. All of that engagement really does help us out. Thank you guys so much for listening. Shout out to Mike and Connor for all the help behind the scenes and we'll see you guys back here tomorrow. This is the rundown, your real-time resource for news events and trends in the markets. All views presented in the show reflect the opinions of the guests. You should not take any mention of a publicly traded security as recommendation to buy, sell or hold that security. Run-down guests are not financial advisors and are not affiliated with public holdings or its subsidiaries. You should make your own financial and investment decisions or consult. Respective professionals.

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