Why McDonald's Dragged on the Dow

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The Dow Jones Industrial Average (DJINDICES: ^DJI  ) rose just 0.02% in late trading during a slow day on Wall Street. There's no major economic news out today and traders are left to contemplate what the Federal Reserve will do with its $85 billion in monthly bond purchases. Fed officials James Bullard, Richard Fisher, and Jeffrey Lacker all said they supported slowing the program as early as next week, which would be earlier than many expected.

A slowdown in the bond-buying program could send stock markets lower and interest rates higher in the short term, but investors need to keep in mind that the Fed would only make this move because it's confident the economy can stand on its own. That is great news considering everything that's happened in the last five years.

McDonald's lags the Dow
Shares of McDonald's (NYSE: MCD  ) dropped 1.2% today after the company reported weaker-than-expected same-store sales in November. U.S. same-store sales dropped 0.8% from a year ago, while the Asia-Pacific, Middle East and Africa segment was down 2.3%. The only bright spot was Europe, which saw a 1.9% increase.  

McDonald's is struggling to adapt to the rapid rate of change in the fast-food and fast-casual segment. The company has tried salads, high-end beef, smoothies, and even fruit options, but they don't seem to resonate with customers.

Meanwhile, higher-end competitors Chipotle and Panera Bread are seeing same-store sales rise as consumers trend toward higher quality and healthier items.

Can McDonald's return to dominance?
The challenges for McDonald's come from a variety of places, presenting a long-term problem. Consumers are looking for healthier foods, which is at odds with McDonald's image even if it offers those options. Then there are labor problems, including a recent strike by workers looking for $15 an hour in pay, up from the average McDonald's wage of slightly more than minimum wage.

McDonald's is an American institution, but people aren't trading down to lower cost-food options like they wdid during the recession. Instead, they're trading up to places like Chipotle and Panera Bread, which may result in a long, slow decline for McDonald's.

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  • Report this Comment On December 09, 2013, at 4:38 PM, ScottPletcher wrote:

    I'm doubtful of a long decline for value-priced fast food, given the upcoming financial impact of ObamaCare, which will slam people with huge, unexpected costs.

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9/27/2016 4:45 PM
^DJI $18228.30 Up +133.47 +0.74%
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McDonald's CAPS Rating: ***