The Nobel Prize in Economics Goes To...

The markets drifted higher this week as the start of earnings announcement season kicked off.  For the most part, companies are meeting or beating analysts’ expectations and providing guidance that neither surprises nor upsets investors.  This is all good news and sets the stage for the fourth quarter, assuming the announcements remain upbeat.

You may be pleased to learn that Wall Street’s bull market entered its third year, climbing a total of 62.5% over a total of 502 trading days.  The S&P 500 bottomed out at 3,577 back on October 12, 2022, and has since rallied.  To be clear, it has not been a straight line higher.  There have been two 7% pullbacks (12/22 and 2/23), one 10% (8/23), a 5% (3/24), and an 8% (7/24) during this period.  As measured by length, this is only the twelfth longest rally according to CG Capital Markets.  For comparison, the median gain has been nearly 80% over a span of 661 days.  The largest gain, over 300%, was recorded in 1998 after 1,942 days, while the smallest increase, 44%, occurred just before the pandemic, lasting 287 days.  The good news is that once a bull market makes it past its second birthday, it tends to go further.  Of course, this is no guarantee, but for now, the soft-landing narrative makes it likely that this bull market has room to run.

There was a lot of company news this week, so let me summarize some of the most important stories.

• Starbucks: New CEO Brian Niccol has a new plan for growth.  It is reducing the number of discounts and promotions the company offers.   Most notably, it does not plan on offering broad promotions during the holiday season.  While this seems simplistic, perhaps management believes customers are more loyal to the brand than meets the eye.
• McDonalds: The company appears to be out of new ideas.  Well, except for its new Chicken Big Mac which is a chicken patty with Big Mac sauce?   Time will tell whether this new concept has any staying power, but I am skeptical.
• Walgreens: The company announced it is planning to close 1,200 stores over the next three years, which includes 500 in fiscal 2025 alone.  This represents just shy of 14% of its locations. The closures will be immediately accretive to their adjusted earnings according to the company.  Like Starbucks, this is another head-scratcher.
• Amazon & Google: It turns out they do recognize the dramatic impact they will have on the national power grid after all.  Data center electricity usage is expected to grow astronomically over the next five to ten years, calling into question whether the U.S. grid can handle the draw.   Both companies announced this week they plan on investing in small nuclear reactors.  Both companies are investing a lot of money in small nuclear reactor companies such as NuScale Power, Oklo, Nano Nuclear Energy, and X-energy.
• Qualcomm: In a surprise announcement, the company reported it will wait until after the U.S. presidential election before it decides if it will try to make an offer to acquire Intel Corp.  It is waiting to see the new administration’s position on antitrust matters.  Makes sense.
• PepsiCo: The company acknowledges it may have gone too far in the shrinkflation department.  It announced this week it plans to put more Lay’s, Doritos, Tostitos, and Ruffles potato chips in some bags after hearing criticism from customers.  The bags will be labeled as “bonus” bags and contain 20% more chips for the same price in select locations.

In closing, I want to share with you the results of the Nobel Prize for economics this year.  Three U.S. professors won the prize for their study of the importance of societal institutions in a country’s prosperity.  Maybe I’m just not seeing the genius but here’s their idea.  One of the reasons some countries are prosperous and others are not stems from how they were colonized.  In some places, countries sought to extract resources and exploit indigenous peoples for the colonizer’s benefit.  In other countries, inclusive political and economic systems were formed for the long-term benefit of European migrants.  Like I said, maybe I’m missing something but isn’t this obvious?  I’m not sure what this says about the study of economics, but as someone who majored in the field, I feel like maybe my undergraduate work should be reviewed by the Nobel committee.  Now you know.