Stocks rally to best day since 2011 (8/26/15)
After losing some momentum when the European markets closed, the markets surged through the close and broke a brutal six-day losing streak. Additional stimulus from the Chinese central bank, a surprisingly strong durable goods report, and a concession from the New York Federal Reserve President that a September rate hike was “less compelling” helped secure today’s gains.
The Dow soared 619 points, with x of its 30 of its components advancing; the S&P 500 Index climbed out of correction territory by adding 72; and the Nasdaq rallied 191. Advancers led decliners by more than four to one on the NYSE and by three to one on the Nasdaq. Treasury prices weakened. Gold futures fell $13.70 to close at $1,124.60 an ounce. Crude oil dropped $0.71 to settle at $38.60 a barrel.
In other business news:
- After cutting interest rates on Tuesday, the People’s Bank of China announced additional stimulus in the form of 140 billion yuan ($21.8 billion) of six-day low interest loans to commercial banks. The move is meant to smooth out fluctuations in liquidity and stabilize interbank lending.
- Orders for durable goods rose a seasonally-adjusted 2% in July, according to the Commerce Department. The increase was driven by higher orders for new cars and military goods. Core durable goods orders, which excludes the more volatile defense and transportation industries, climbed 2.2%, the largest increase in thirteen months. The data came in well above analysts’ expectations.
- New York Federal Reserve President William Dudley commented that the current market volatility makes a rate hike in September “less compelling”. However, he noted that a great deal of economic data would be released between now and the Fed’s meeting on September 16-17 which could lead to the Fed implementing the initial hike next month.
- Schlumberger, the world’s largest oilfield company, agreed to buy Cameron International, an oilfield equipment maker, for $14.8 billion in cash and stock. The acquisition will result in streamlined supply chains and reduced operating expenses, which should prove beneficial with the falling price of oil. The deal is expected to close in the first quarter of 2016. Shares of Schlumberger (SLB) fell 3.35%, while Cameron’s shares (CAM) gained 41.11%.
- Biotech company Monsanto decided not to pursue its acquisition of Swiss agribusiness company Syngenta AG after Syngenta refused Monsanto’s latest offer of $46 billion. Monsanto, which had been struggling lately due to falling commodity prices and slowing growth of its biotech products, said that as a stand-alone company, it would work to double its 2014 profit by 2019 and begin buying back stock as soon as possible. Monsanto’s shares (MON) climbed 8.68% on the news.
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As we mentioned last week in Daily Advantage, avian flu will have a major impact on egg prices well into next year. According to CNBC, wholesale prices for a dozen eggs skyrocketed 135% from April to August this year, and experts believe that the problem may compound if birds spread the disease as they migrate south. For the restaurant industry, the timing couldn’t be worse.
Restaurant traffic has been fairly stagnant over the past few years. But there’s one bright spot—breakfast, which has shown 4% growth over the past year.
A breakfast menu without eggs probably wouldn’t go over easy (sorry) with diners, so restaurants have had to scramble (sorry again) to figure out how to balance rising demand with rising costs. (And this is probably as good a place as any to warn the pun-averse to turn back now). Texas-based burger chain Whataburger scaled back its breakfast hours, and Dunkin’ Donuts canceled an egg-heavy promotion planned for this fall.
Some companies don’t see cutting menu items as an option and are asking customers to shell out more. Denny’s restaurants raised the prices on their omelets, as did Taco Cabana, although it said its price hike was temporary until it could secure lower prices.
And then there’s McDonald’s. The company’s sales have been struggling, and it’s been trying to hatch a plan to reverse the trend. One of the most successful tactics in test markets has been all-day breakfast, and analysts eggspected the company to roll it out nationwide in October, a launch date that might now be at whisk. Less than egg-cellent timing.
Speaking of whisk, I mean, risk, companies have been managing it by locking in prices in order to protect themselves from drastic price swings. But the drawback is that these contracts only lock in prices for three to six months, so while they may be protected now, if avian flu continues to migrate, diners may not always be immune to future price hikes.
All yokes aside, while there might be short-term pricing pain for the industry, long-term forecasts are sunny side up. According to research from the National Restaurant Association, 72% of adults want all-day breakfast. I’m part of that group, so even if the prices of my favorite breakfast items continue to increase, omelettin’ that slide and keep having breakfast for dinner. We now return you to your regularly scheduled non-pun programming.
