In this issue of the peel:

• Confidence in the U.S. economy is crashing, according to non-financial civilian consumers. But it’s not just political this time. Find out the even bigger determinant in the assessment of current economic conditions.

• Bad earnings are good, and good earnings are bad, according to Mr. Market on Monday.

• Competing with the Ruth Chris’s of the world isn’t working out so hot for McDonald’s. Check out just how bad the company’s latest quarter was.

Market Snapshot

Banana Bits

• An unlikely romance (and one the FTC will hate) is brewing between Apple and Google

• Consumers remain in a decent financial position, according to BofA’s data

• It took an R-rated movie, but Disney finally had a decent day at the box office

• The boom in U.S. manufacturing roles is finally starting to slow

Macro Monkey Says

Politics, Religion, & The Stock Market

Three things not to talk about… unless you really want to get your drunk uncles & aunts fired up around the Thanksgiving table.

By now, it’s well known that the direction you lean when walking into a polling booth also tends to predict somewhat how you feel about current economic conditions.

However, based on the University of Michigan’s latest data, there appears to be a factor impacting your macro forecast even more than which elderly man you vote(d) for.

Let’s get into it.

The Numbers

For most non-financial civilians, asking how they feel about the economy is like asking my parents how they feel about taking psychedelic mushrooms—sure, they know what the words mean but have no clue what they’re talking about.

Nonetheless, the University of Michigan has a lot of confidence in everyday Americans.

According to their latest report published last week, those everyday Americans are about as downbad as I was on Tinder.

Confidence in ourselves has crashed over the last few months. In July, overall consumer sentiment fell to its lowest level since November 2023 at 66.4.

That’s a 2.6% decline for the month and a depressing 7.1% decline annually.

Meanwhile, everyday Americans’ mindless assessment of Current Economic Conditions fell even further, down to 62.7 in July. Monthly, that’s a decline of 4.9% and a Boeing plane crash-level 18% decline from July 2023.

The vibes are off in the U.S. economy despite the fact that the actual economy is continuing to perform strongly. We’ll get an update on labor market conditions at the end of this week, which tend to be the primary determinant of consumer’s macro-based mood.

But, despite a rising stock market, falling inflation, and a lower-for-sooner rate environment, Americans still aren’t happy.

Actually, that whole “rising stock market” thing might have something to do with it…

According to the University of Michigan’s above chart, Americans in the top 10% of stock ownership feel much better about the country’s economy than those without exposure to the Nvidia’s of the world.

Not only does this make sense, but it’s borderline obvious by intuition alone.

Those of us with money in the market tend to be in a better financial position. Plus, if you have money invested in the S&P 500 or elsewhere in U.S. markets, you’re literally betting that conditions will improve over time, so it’s only right to be more optimistic.

However, the interesting thing emerges when we juxtapose the spread of confidence in the U.S. economy by stock market ownership with the spread of confidence by political affiliation.

At confidence readings of 86 and 59 above, the spread of confidence by stock market ownership clocks in at 27.

And… according to Pew’s latest data on political affiliation, the spread of confidence between Democrats and Republicans clocks in at just 25%.

So, despite all the vitriol, we can confidently say that last month, stock market ownership was a greater predictor of the average American’s assessment than political affiliation.

Using only the top tercile of stock ownership, this may not be the case across the board. But, from the available data, it certainly seems to be the case.

The Takeaway?

Americans across the board are losing confidence in the economy.

The soft landing remains in full effect (for now). But as the election approaches, it makes sense that economic anxiety is rising in tandem.

Expectations matter as economic decisions made today depend on how one feels about future conditions. So, in macro, it really is true that you just gotta believe.

But apparently, and perhaps even shockingly to most, class matters more than politics in the U.S. Just don’t tell Karl Marx I said that.

We only speak the language of data here at the Peel—we couldn’t care less who you’re voting for. We just want all of our apes to become as rich as they are wise. And, we have a feeling we all will… soon enough.

What's Ripe

ON Semiconductor (ON) 11.5%

• Kindly set your Investing 101 textbook on fire. I get that math is hard, but I thought declining revenue and margins were a bad thing. But not for On Semi.

• All three of On’s segments saw revenue declines quarterly and annually, with total revenue down 7% QoQ and 17% YoY. Gross and operating margins fell, too.

• The thing is—it’s not about “good” or “bad,” but “better” or “worse.” On beat consensus estimates, raised guidance, and is coming off an already-beaten down price level. Expectations are everything.

Tesla (TSLA) 5.6%

• The forgotten Jonas brother may not be pumping out albums, but he certainly is pumping stocks. Adam Jonas of Morgan Stanley just made Tesla sing.

• The analyst named Elon & Co. as his top pick among U.S. automakers, replacing Ford. After falling 18% in two weeks, the stock was ripe for heavy bidding.

What's Rotten

Coursera (COUR) 12.9%

• It’s “back to reality, ope there goes gravity” for Coursera to start this week. The education firm learned a lesson about delivering a solid quarter.

• The equation Mr. Market taught Coursera goes something like this: good earnings + skyrocketing share price = profit taking.

• The selling pressure comes from positions getting trimmed or exited on Friday’s >40% gain. Or, it could be random—the one thing we know is that it was down big time.

Stellantis NV (STLA) 3.9%

• While Tesla became Morgan Stanley’s new prom queen yesterday, Stellantis had it worse than the kid who thinks wearing a fedora is cool (not that I ever did that…).

• Anyway, the auto conglomerate was downgraded by Deutsche Bank—which I’d think would be bullish but apparently not—sending shares lower.

• DB insightfully cited “multiple challenges” as driving their downgrade. Genius analysis—I have no idea why everyone bullies these guys.

Thought Banana

Earnings Spotlight: McDonald’s (MCD, 3.74%)

Welcome to earnings szn. Would you like a side of fries with your #$GAINZ?

If you went to McDonald’s on Monday, you could’ve gotten both. True, you may have paid obscene prices for both the stock and those golden, crispy, delicious bites of heaven, but yesterday’s earnings-driven rise makes it worth it.

Let’s get into it.

What Happened?

America’s national restaurant, if we had one, missed on both the top and bottom line for the second quarter.

Per share earnings of $2.97 on $6.49bn in sales came in below estimates by 3.5% and 2.4%, respectively. Still, shares moved in the right direction.

Not only did the National Treasure of fast food miss on estimates, but just about every important line item was worse, too!

Same-store sales, a measure of annual growth in sales at established eateries, excluding newly launched locations, declined in all reportable segments.

The story of the report was simple—McDonald’s is selling food to first-year analysts but charging them prices like they’re seasoned Managing Directors.

Inflation has taken over the fast food market like no other.

For McDonald’s U.S. President Joe Erlinger to say, “We continue to lose traffic share of low-income consumers,” is like if Apple said, “We continue to lose share in smartphones, computers, headphones, and money.”

The Takeaway?

It’s a harbinger of bad news for other restaurants. The question now is whether this is an issue attributable to McDonald’s exorbitant prices or a broader issue of consumers eating out less.

If it is consumers eating out less, the U.S. economy is in trouble. But let’s wait until more restaurants drop their Q2 numbers before running to our bunkers... for now.

The Big Question: Is this an idiosyncratic or industry-wide issue? Why are investors so confident McDonald’s will see a successful turnaround?

Banana Brain Teaser

Previous

Of the 150 houses in a certain development, 60 percent have air-conditioning, 50 percent have a sunporch, and 30 percent have a swimming pool. If 5 of the houses have all three of these amenities and 5 have none of them, how many of the houses have exactly two of these amenities?

Answer: 55

Today

Working at a constant rate, a copy machine makes 20 copies of a one-page document per minute. If the machine works at this constant rate, how many hours does it take to make 4,800 copies of a one-page document?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Jasper & Patrick

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