Chipotle’s shares fell about 9% after the bell Wednesday, after the Mexican fast casual chain missed Wall Street’s expectations for the second quarter.
Sales at restaurants open at least 13 months increased 7.4% in the period, and total revenue grew 13.6% to $2.5 billion. Both metrics fell below analysts’ expectations, according to Refinitiv.
Consumers have been pulling back on discretionary expenditures as they feel pressure to budget amid stubborn inflation.
Coca-Cola, Unilever, and even LVMH — the owner of Louis Vuitton, Dior and other luxury brands — have said recently that shoppers are slowing their purchases and trading down.
Chipotle’s own costs have been high, according to the company’s executives. That means that price hikes are still on the table for customers.
“We’re seeing some inflationary pressure both on the labor line and in some of the food areas,” CEO Brian Niccol said during an analyst call Wednesday. “As we get closer to that fourth quarter, we’ll make a decision on exactly what we want to do on the pricing front.”
Niccol referred to pricing as a lever that is “the last thing we like to pull.” But, he added, “the brand is very strong … and we have that pricing power.”
Niccol said he sees an opportunity to get more people in stores by preparing food more quickly. Chipotle recently announced that it is testing out a robot that cuts, cores and peels avocados, which should help reduce the time it takes to produce guacamole by about half.
Meta’s “year of efficiency” seems to be paying off.
The Facebook-parent company on Wednesday reported revenue of some $32 billion for its quarter ending in June, marking a 11% increase compared to the same period last year and beating Wall Street’s expectations.
The results mark Meta’s second-consecutive quarter of revenue growth after a brutal 2022 that was marked by revenue declines.
Meta shares jumped some 7% in after-hours trading immediately following the results.
The Dow notched its 13th consecutive day of gains Wednesday, marking the longest winning streak for the blue-chip index since 1987. The boost comes as recession fears fade and companies in the index report strong second-quarter corporate earnings.
Markets were otherwise little changed Wednesday afternoon after the Federal Reserve announced a widely expected quarter-point rate hike and issued very little forward guidance on future hikes.
“The statement is a yawner,” commented Seema Shah, chief global strategist at Principal Asset Management, of the decision. Wall Street appeared to agree.
Boeing, Coca-Cola and 3M saw their share prices increase by 8.8%, 1.3% and 2.6%, respectively, after beating earnings expectations.
The Dow closed up 84 points, or 0.2% on Wednesday.
The S&P 500 was flat
The Nasdaq Composite closed 0.1% lower.
As stocks settle after the trading day, levels might still change slightly.
Stocks oscillated on Wednesday after Federal Reserve Chair Jerome Powell reiterated that the central bank remains data dependent in determining future interest rate hikes.
The Dow rose 0.1%, or 38 points. The S&P 500 fell 0.1% and the Nasdaq Composite slipped 0.2%.
All three major indexes turned positive after the Fed delivered its decision to hike rates by a quarter point, and during Powell’s comments, before paring back their gains.
Federal Reserve Chair Jerome Powell said on Wednesday that policymakers are closely watching Russia’s recent decision to pull out of a crucial wartime deal allowing the export of grain from Ukraine.
Investors worry that the end of the deal could push up food prices and tip millions of people into hunger while boosting still-elevated inflation.
“We’re watching it very closely,” Powell said during a press conference. “The withdrawal from the Black Sea grain initiative does raise concerns about global food security, particularly for poorer countries that import a large share of their food.”
White House officials have called the deal “critical” to bringing down food prices around the globe, but Powell took a more nuanced approach to the situation on Wednesday afternoon.
“Grain prices did go up but remain well below the peaks of last spring,” he said. “The moves we’ve seen so far are not expected to make a significant contribution to US inflation.”
Global grain prices could increase by as much as 15% if there is no resolution, said the International Monetary Fund on Tuesday.
Wheat futures fell by 5.3% on Wednesday after surging to a five-month high earlier this week.
While most regional and mid-sized banks have been able to regain their footing after three regional banks collapsed this year, PacWest Bancorp has struggled.
On Tuesday, the Beverly Hills-based bank reported a $290 million decline in deposits last quarter. That’s on top of the multibillion-dollar loss in deposits it saw after Silicon Valley Bank collapsed in March.
To shield itself from further dangers, the bank announced on Tuesday it would be merging with its smaller rival Banc of California.
Federal Reserve Chair Jerome Powell didn’t appear concerned by this latest banking plot twist.
“Overall, the banking system remains strong and resilient,” he said at a press conference Wednesday following the Fed’s latest decision on rates. “Of course, we’re still watching the situation carefully and monitoring the conditions in the banking sector.”
He added that, as a whole, “things have settled down for sure out there,” regarding sector-wide bank stability.
Here’s what Wall Street thinks about the Federal Reserve’s quarter-point rate hike:
The Federal Reserve has had some help from natural disinflationary factors — like supply chains returning to normal and energy prices falling — but restrictive monetary policy will have its moment to shine in bringing down core inflation to the central bank’s 2% target, Fed Chair Jerome Powell indicated Wednesday.
When answering a question in the post-meeting news conference about how much credit to give to economic factors outside of the Fed’s control, Powell noted that both the normalization of economic conditions following the pandemic and increasingly restrictive monetary policy both have had an effect, up to this point.
“Headline inflation has come down sharply from elevated levels as energy and food prices have come down mostly due to reversal of the effects from the war in Ukraine,” Powell said. “And that’s a good thing, and the public experiences that I mentioned earlier. For core inflation I’d say there has been a role for most, for both factors.”
Core inflation, which strips out the oft-volatile categories of food and energy, has cooled at a much slower pace. Helping to prop that up have been increasing shelter (rent) costs as well as rising prices for used cars as well as services.
It’s in that non-housing services component where monetary policy will be key, Powell said.
“Clearly, higher rates have slowed the housing market,” he said. “Monetary policy is working about as we expect, and we think it will play an important role going forward — in particular in non-housing services. That’s where the labor market will come in as a very important factor.”
The Fed is hoping that higher interest rates could squeeze demand and help soften labor market activity, which to this point has remained historically strong and a driver of consumer spending.
It’s no secret Americans are spending lavishly on entertainment this summer.
In the Fed’s most recent Beige Book wrapup of US business activity, central bankers noted how May was the strongest month for hotel revenue in Philadelphia since the onset of the pandemic, “in large part due to an influx of guests for the Taylor Swift concerts in the city.”
In response to a question about how fans of the “Barbie” movie (distributed by CNN’s parent company Warner Bros. Discovery) and Taylor Swift may drive inflation higher, Fed Chair Jerome Powell said the central bank is watching overall spending “carefully.”
Consumer spending, which is a key driver of US economic activity, has eased somewhat in recent months but remains resilient. That could continue to keep inflation high, and may mean the Fed needs to respond with more rate hikes down the road if spending remains strong.
“At the margins, stronger growth could lead over time to higher inflation and that would require an appropriate response for monetary policy,” Powell told reporters at a news conference on Wednesday.
The Commerce Department on Friday will release the latest data on consumer spending alongside a critical inflation gauge for the Fed.
The Dow attempted to notch its 13th straight day of gains Wednesday, on pace for its longest streak of wins since January 1987.
The blue-chip index has risen in recent weeks on the back of strong second-quarter earnings.
The Dow rose over 170 points on Wednesday during Federal Reserve Chair Powell’s press conference, before paring back its gains.
What will the Fed do next? Even Federal Reserve Chair Jerome Powell isn’t sure.
The next few meetings, he said at his Wednesday afternoon press conference, will be “live,” meaning he can’t issue any forward guidance on officials’ policy decision.
That’s a big change from Fed protocol over the past year: to thoroughly prepare markets for upcoming policy decisions and to avoid surprises.
“I wouldn’t want to go automatically to every other meeting because I just don’t think that’s — I think it’s not an environment where we want to provide a lot of forward guidance,” Powell said when asked about his outlook for the September meeting.
“There’s a lot of uncertainty out there. We just want to keep moving at what we think is the right pace,” he said.
“It’s possible that we would move at consecutive meetings. We’re not taking that off the table. Or we might not. It really depends on what the data tells us.”
The S&P 500 and Nasdaq Composite indexes turned positive mid-afternoon Wednesday, as Federal Reserve Chair Jerome Powell spoke at the post-meeting press conference.
The Dow rose 0.5%, or 179 points. The S&P 500 gained 0.3% and the Nasdaq Composite added 0.2%.
The Fed raised rates by a quarter point, in line with expectations.
Here’s what’s different in the Federal Reserve’s post-meeting statement, compared to last month’s.
In June, the statement included the following sentence, which was taken out in Wednesday’s statement: “Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.”
That’s because Wednesday’s decision was to hike, rather than pause.
The latest statement also said that the economy “has been expanding at a moderate pace” compared to the prior month’s statement, which said the economy “has continued to expand at a modest pace.” That doesn’t reflect any meaningful change in how the Fed is viewing the economy.
The July statement is more similar to the May statement, which also said the economy grew at a modest pace, but in the first quarter.
Any renewed signs of inflation could mean that the Fed’s hiking path will be extended, said Gurpreet Gill, global fixed income macro strategist at Goldman Sachs Asset Management on Wednesday afternoon.
Given the uncertainty around the conclusion of this hiking cycle, Gill said her team has limited its exposure to US rates. If there’s more progress in reducing inflation, it will restrict how much US Treasury yields increase, she said. If inflation continues to cool, the 10-year yield may even move down. However, a strong labor market and economy will moderate the potential decrease in yields.
“Today’s Fed meeting was one of the most certain and uncertain of the cycle. A 0.25% rate hike was fully priced in and widely expected by forecasters and investors. However, investors remain divided on whether this marks the last increase in the current tightening campaign,” said Gill.
The Federal Reserve raised its benchmark lending rate by a quarter point Wednesday, lifting interest rates to their highest level in 22 years.
It’s the 11th rate increase since the Fed began its inflation fight in March 2022, bringing the lending rate to a range of 5.25-5.5%, and comes just one month after the central bank hit pause in order to assess the state of the economy after the failures of three regional banks since the spring.
Fed officials are estimating one more rate hike this year, according to their latest set of projections. Inflation’s steady slowdown in recent months has been encouraging for American consumers and businesses, but officials reiterated in their post-meeting statement that “inflation remains elevated” and that the Fed “remains highly attentive to inflation risks,” suggesting that another rate hike remains on the table.
“In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Fed’s statement said.
Eleven times in 17 months. That’s how fast the Federal Reserve has hiked its overnight bank lending rate, which directly or indirectly affects many consumer rates.
The Fed’s aggressive campaign to raise interest rates is intended to beat down inflation. And it may be working. Based on the latest reading, inflation as measured by the Consumer Price Index grew at just 3% in June. And the Fed’s preferred inflation measure — the core Personal Consumption Expenditures Index — inched down to 4.6% in its latest reading.
In either case, both numbers are still above the Fed’s 2% target, which suggests the US central bank may not be done quite yet.
“Despite the euphoria over inflation coming down from 9.1% to 3% in the past year, the trend on core inflation readings — which exclude volatile food and energy components to provide a better read on inflation trends — is much less impressive,” said Greg McBride, chief financial analyst at Bankrate.com.
So when might the Fed be willing to stop raising rates?
“We may be waiting for a protracted period of cooling inflation before we see a halt to interest rate hikes,” said Michele Raneri, vice president and head of US research and consulting at TransUnion.
Either way, here are three ways the Fed’s latest hike announced Wednesday could either take a bite out of your wallet or benefit you.
Supply and demand in the US labor market is coming into better balance and nominal wage growth is showing signs of easing, Federal Reserve Chair Jerome Powell said Wednesday.
“We’re making progress there,” Powell said. “By so many indicators, labor market demand is cooling.”
The Fed has kept close watch on wage gains out of concern that they could further stoke demand and, in turn, inflation.
Fears of a dreaded “wage-price spiral” — when rising wages and prices feed into each other — have made a bogeyman out of wage growth. However, recent economic research from the likes of the San Francisco Fed and former Fed Chair Ben Bernanke noted that wage gains have had little, and certainly not overwhelming, effects on this inflationary cycle.
In June, average hourly earnings grew 4.4% from the year before, matching increases seen in the prior two months, Bureau of Labor Statistics data shows.
That annualized rate of growth is down significantly from the onset of the pandemic, when wage growth spiked to 8.1% and from early last year’s peak of 5.9%; however, the pace of growth remains above the 3% to 3.5% range seen pre-pandemic, according to BLS data.
Even though wages have been on the rise, it certainly hasn’t felt like it for many Americans. For more than two years, household budgets have been eaten away by inflation.
It’s been only recently that the tide has started to turn: June marked the first time in 26 months that US workers’ inflation-adjusted weekly earnings grew on an annual basis.
Chair Powell acknowledged Wednesday that a critical piece of pay data is due out Friday when the BLS releases its latest quarterly Employment Cost Index. That report tracks the changes in employers’ labor costs, and is not as volatile as other measures because it keeps the composition of the workforce constant.
During the first quarter, the ECI showed that workers’ wages and salaries grew 5.1% from a year earlier.
The Federal Reserve takes two days to make a policy decision about whether to hike interest rates. Meeting minutes show us that they take their time to look over detailed data, think through various economic scenarios and debate about the future of the economic climate before coming to a conclusion about whether to hike interest rates and by how much.
But they don’t all have to be in agreement. It only takes a simple majority of Federal Open Market Committee voting members to make a policy decision. That means there might be dissenters.
So far, under the guidance of Fed Chair Jerome Powell, central bank officials have been strikingly aligned. Nearly all policy decisions have been unanimous since the central bank began lifting rates in March 2022, with the exception of two meetings early in the Fed’s current inflation battle.
Some analysts thought there may be dissenters today.
A lack of cohesiveness amongst the group has been brewing. While June’s rate hike “pause” was presented as a unanimous decision, the notes from the meeting showed wide dissension and intense debate.
One or two dissenters would make sense this meeting, said Kathy Jones, chief fixed income strategist at Charles Schwab. “We’ve heard from a handful of Fed officials who believe policy is restrictive enough,” she wrote in a note.
Minutes from July’s meeting, set to be released in the next few weeks, will show if there were more tensions bubbling below the surface of this unanimous decision.
Larry Summers, the former Obama and Clinton official, this week slammed parts of President Joe Biden’s economic agenda as “increasingly dangerous,” saying it could end up causing higher prices for Americans.
“I am profoundly concerned by the doctrine of manufacturing-centered economic nationalism that is increasingly put forth as a general principle to guide policy,” Summers said on Tuesday while speaking virtually at an event held by the Peterson Institute for International Economics.
Specifically, Summers took issue with the administration’s trade stance, efforts to prop up US manufacturing and its antitrust crackdown. The president emeritus of Harvard University argued this approach could prove to be inflationary.
“It is wrong to suppose that manufacturing-based economic nationalism is a route to higher incomes or better standards of living for the middle class,” Summers said.
The White House did not comment in response to the criticism from Summers, who was early to speak out in 2021 about the looming threat of inflation.
US markets struggled to find direction on Wednesday afternoon ahead of the Federal Reserve’s July interest rate policy decision, expected at 2 p.m. ET.
Financial markets are pricing in a nearly 97% chance of a quarter-point rate hike, according to the CME FedWatch Tool. Still, investors on Wall Street are unsure about whether this will be the final increase by the Fed in an economically painful 16-month long hiking regimen meant to cool the economy and fight inflation.
Some investors are cautiously optimistic that Wednesday will mark a pivot away from Fed hikes, but policymakers have indicated that there will likely be another increase later this year.
Wall Street will be watching closely for clues at Fed Chair Jerome Powell’s 2:30 p.m. press conference about what comes next.
“Markets tend to talk themselves into thinking the Fed will cut, has to cut, or should cut. Wishful thinking substitutes for analysis, until the facts reassert themselves,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, in a note Wednesday.
Tech stocks also struggled for direction on Wednesday as second-quarter corporate earnings results were mixed. Snap plummeted nearly 19% after reporting a miss and lowering forward guidance, while Google-parent Alphabet was up over 5% after beating estimates.
Boeing, meanwhile, was up nearly 7% following a strong quarterly report.
Treasuries were stronger ahead of the Fed decision and gold was up 0.5%. Bitcoin futures were also 0.5% higher.
The Dow was flat on Wednesday afternoon.
The S&P 500 was 0.3% lower.
The Nasdaq Composite was down 0.4%.
