McDonald’s Corp. investors are currently experiencing the most significant weekly downturn in four years, as worries grow about the impact of the recent surge in interest rates on consumer spending.
The stock of the fast-food giant, with the ticker MCD, -0.97%, declined 1.4% in afternoon trading, indicating a potential closing at its lowest point since Oct. 17, 2022.
Over the course of this week, the stock has experienced a 5.6% drop, making it the poorest performer among the components of the Dow Jones Industrial Average DJIA. Furthermore, it is on track to record the longest weekly losing streak since the one that ended on Nov. 8, 2019.
Impact of Job Data
The weakness observed in McDonald’s stock on Friday followed the release of job data for September, which surpassed expectations. Although an increase in jobs might seem beneficial for consumer spending, there is concern that a robust job market could prompt the Federal Reserve to continue raising interest rates.
Analysis by McDonald’s CFO
During a conference call with analysts in late July, McDonald’s Chief Financial Officer Ian Borden acknowledged that challenging macroeconomic conditions, including rising interest rates and heightened costs, have led to volatile consumer confidence levels and placed pressure on consumer spending.
Investors will be eagerly awaiting McDonald’s third-quarter results, which are slated to be reported on Oct. 30.
The Impact of Treasury Yields on Consumer Loans
The yield on the 10-year Treasury note reached a 16-year high of 4.887% in intraday trading before settling at 4.776% in the afternoon, following the release of jobs data. This notable increase in yields has significant implications for various consumer loans, including mortgages and car loans.
Potential Consequences of High Yields
Bernard Baumohl, the chief global economist at The Economic Outlook Group LLC, warns that a sustained 10-year yield above 5% for an extended period could have detrimental effects on business and consumer spending. With the private sector already burdened by a record high level of debt, such a scenario may result in economic slowdown or even shutdowns.
McDonald’s Stock Weakness vs. Dividend Increase
Additionally, McDonald’s stock experienced a decline on Friday, two days after the company announced a 10% increase in its quarterly dividend. Shareholders of record on December 1st will enjoy the new dividend of $1.67 per share on December 15th.
Based on the current stock price, this dividend hike implies an annual dividend rate of $6.68 per share, resulting in a dividend yield of 2.684%. This is the highest implied yield since July 2020.
Comparing Dividend Yields
When compared to other investment options, McDonald’s dividend yield stands out significantly. The yield of the Consumer Discretionary Select Sector SPDR ETF is 0.89%, while the implied yield for the broader S&P 500 index is just 1.61%. McDonald’s offers a much more attractive return for investors seeking dividend income.
These developments demonstrate the crucial role that Treasury yields play in shaping consumer loan rates and impacting various sectors of the economy. As investors monitor these trends, it will be interesting to see how businesses and consumers adapt to the changing financial landscape.