The new worry: The economy is struggling

Share

Just as you start to think that all is well in the world – Washington avoids default, Iran talks nukes, crude oil prices decline and U.S. stocks hit record highs – along comes a new worry: The economy is struggling.

Or at least that's what McDonald's Corp. is saying after reporting disappointing quarterly results on Monday: "While we are focused on strengthening our near-term performance, the current environment continues to pressure results," said the company's chief executive, Don Thompson.

Among those results, global sales at locations open for at least one year (or same-store sales) rose 0.9 per cent and U.S. sales rose just 0.7 per cent. McDonald's warned that global same-store sales in October would likely be flat.

Admittedly, McDonald's has been seeing economic clouds for some time. Its second-quarter results, released in July, were also disappointing and contained warnings that the global economy would weigh on results throughout 2013. But that warning is now playing out, and it gives the company some credibility in its economic forecasting skills.

It also coincides with a drop in U.S. consumer confidence. The Thomson Reuters/University of Michigan confidence survey has slumped to a nine-month low, not long after ringing a six-year high in the summer. A new reading is coming Friday.

Meanwhile, markets appear to be shifting their views on tapering by the Federal Reserve, with stabilizing bond yields (the yield on the 10-year U.S. Treasury bond is back at June levels) suggesting that the Fed is not going to wind-down its bond-buying program, or quantitative easing, any time soon. Attribute that to the recent government shut-down, which halted economic data, but it could also be due to economic weakness.

FT Alphaville reported on an interesting strategy shift from Andrew Law at Caxton Associates – a successful macro trader who has now turned bearish: "Growth has averaged 2.2 per cent for the last 4 years," Mr. Law said. "We have had zero rates and hugely stimulating bouts of QE and growth has not accelerated beyond that. So why now is it going to? Tapering is off the table for the foreseeable future."

For investors, though, economic concerns have to be put into context: The stock market has done just fine with an onslaught of worries since the recovery began in 2009 (Barron's calls it The Houdini market), making you wonder if this latest bout of concerns is just par for the course.