Boockvar on the Rational Rally, Consumer Insights
The following is from Peter Boockvar:
Actually, mostly rational action/Great looks on the consumer/Other stuff
With the understanding that the stock market doesn’t care about your politics and doesn’t care about how you feel, yesterday’s stock market action in the post election response I thought was actually quite rational. Rational in that it sold off the picks and shovels companies feeding the buildout of data centers. Rational, but maybe unrealistic, that we’re going to quickly get a deal with Iran that caused the drop in oil but that in turn helped to lift everything consumer facing. Add in the drop in rates in response and it helped other parts of the market. With the hyperscalers. On one hand, I get that if less data centers are built, these companies won’t burn as much cash. On the other hand, they need the added compute capacity to power their own models but also a huge chunk of their cloud backlogs are from OpenAI and Anthropic and if they can’t access to as much computing power, they’ll need less cloud capacity. Finally, a split federal government means little gets done and markets like that.
A bunch of earnings calls from companies directly touching the consumer.
From McDonald’s, up 6% yesterday:
Comps in the US fell .2% y/o/y. “In the US, performance improved as the quarter progressed, with comparable sales turning positive in September following a slightly negative result in July and August. That improvement followed a series of interventions we initiated in the quarter, restoring some digital offers to drive frequency with our most engaged customers, shifting marketing support toward proven value platforms, and stepping up our focus on restaurant level execution.”
Overseas, comps rose 1.4%. “Our international markets delivered another quarter of solid results…even amidst the continued challenging consumer environment.” They called out France as a place of weakness in Europe not surprisingly. Ukraine too.
From Kraft Heinz, up almost 4% yesterday, a stock we own and one of my favorites:
“Organic net sales were down 1.1% driven by a decline in US Retail, partially offset by strong growth in emerging markets and Global Away From Home. When we compare our underlying performance to the first half of the year, we continue to see improvement – including recovering volume trends.” Their meats business is the main area of the volume decline “but it’s improving.”
In their last call they expected 4-5% inflation next year. “The expectation is now slightly above 5%” and is coming from packaging and from certain commodities along with logistics. And in response, “I do think you’ll see more pricing in ’27, not less pricing.”
“the consumer is in a fragile state and we want to take as little price as possible in order to meet the consumers where they are.”
From Cava, down premarket after they missed the comp estimate and both top and bottom line:
Comps rose 3.1%. “The impact of broader concerns around the consumption of fresh produce at the beginning of the quarter, followed by the reemergence of high gas prices, impacted traffic across the category.”
Of note, because of the quality of their food and at a reasonable price, “We are continuing to see our restaurants in median household income markets that are lower have the strongest and highest same restaurant sales. So that trend has continued into Q3,”
From Dutch Bros, numbers slightly beat but the stock is down premarket because of muted guidance:
Comps rose 5.4% y/o/y. “So as we look at the customer health, we had a great Q3. So feel really good about where we ended. As we talked about customer volatility, the primary driver of what we’ve been seeing throughout the year is really what we are actually comping over from the prior year. But we did see a heightened level of choppiness in Q3. And I think that as we look at some of that choppiness, it could be attributed somewhat to the rising gas prices.”
“We’re also seeing particular strength from the Gen Z customer. And I think it just is as there are more and more Gen Z customers are coming into this market, they are choosing Dutch Bros. We are clearly taking share, especially in the Gen Z space.”
From Reynolds Consumer Products, another staples stock we own and up 4.3% yesterday:
“We led pricing across our categories to recover commodity inflation and we delivered results at or above our outlook while continuing to invest behind our brands. As expected, higher prices led to some volume elasticity layered on top of a challenged consumer and a backdrop of increased competitive activity.”
“Turning to the consumer. Household budgets remain under pressure and we continue to see that reflected in purchasing behavior across our categories. Consumers are seeking value in a number of ways such as purchasing more on promotion, moving toward opening price point items, or choosing larger value seeking pack sizes. We continue to see the consumer increasingly shopping across mass, club and e-commerce channels. And shopping is increasingly organized around occasions as retailers and delivery platforms bring tools that let shoppers plan by meal or event, in addition to shopping by individual product categories.”
From Madison Square Garden Entertainment, the owner of the famed MSG and other venues, down 1% yesterday but live entertainment still very much in demand:
Their results were up y/o/y “as we continue to benefit from robust, ongoing demand for our offerings. This past quarter, that strength was most notably reflected in our bookings business. And looking ahead, we anticipate that demand will also drive another record setting run for the Christmas Spectacular.”
“During the quarter, we hosted over 1.3 million guests across 160 live events. This reflected broad based booking strength in concerts, performing art shows, to special events. That included the start of Harry Styles’ 30 night residency during the quarter.” I’ll add, my son, who is in the concert touring business and sees countless shows, said this was the best concert of the year.
“In terms of consumer demand, the significant majority of our concerts were again sold out during the quarter. In addition, combined food, beverage, and merchandise per cap spending at concerts was up a double digit percentage y/o/y.”
From Uber whose stock rallied 5% with numbers about as expected:
“Elevated fuel prices and tighter driver availability weighed on supply growth in several international markets, causing overall Mobility growth to come in 1 to 2 percentage points below our expectations.”
“U.S. growth moderated much more modestly, supported by continued benefits from insurance reform, with California trip growth accelerating meaningfully and outperforming the rest of the country.”
“if you zoom out and look at the macro environment, with the escalation and the war in the Middle East, fuel cost impacts have been felt globally. Where it shows up most materially for us is in emerging markets where there is a level of price sensitivity on both the consumer and the driver side.”
From Wayfair and whose stock popped by 11% yesterday:
Rather than getting industry help, they continue to take market share. “We entered 2025 with a US share spread in the mid single digits, widened it to high single digits by year end, and promised to push it into the double digits in 2026. With US revenue growing double digits (over 11%) against a roughly flat category here in Q3, we’ve done exactly that.”
“You’ve heard us say this many times, but our success has been independent of the macro.’
With respect to the industry growth, “I think the category continues to bump along. And so it’s been out of favor for some time…it’s cyclical but we’re probably on the low end of the cycle or at the bottom…So I’d say consider that sort of holding the course it’s been on.”
From Elf Beauty, up premarket on better than expected results:
“Organic net sales grew approximately 35% y/o/y. This better than expected performance was supported by growth across all of our brands, along with pipeline shipments for Rhode’s launch in Sephora Europe.”
On to my go to tech earnings call.
From CDW, a tech distributor that touches many end markets and whose stock jumped almost 13% yesterday:
“Momentum in AI enterprise adoption drove strong infrastructure investment, propelling hardware growth ahead of software.”
“Current market conditions remain constructive. Customer engagement and written demand remain healthy. Writings continue to outpace invoicing, and backlog is building, particularly in enterprise infrastructure. Given this backdrop, we are increasing our full year outlook. We now expect the US IT addressable market to grow at a high single digit rate in 2026 on a customer spend basis.”
The Bank of England hiked interest rates by 25 bps as expected to 4% with one member, Catherine Mann, wanting a 50 bps hike. The other 8 all voted for the 25 bps. On why they hiked, “While the direct effects of higher energy prices are clear, and will continue to feed into firm and household energy bills, there remains limited evidence of knock-on effects on other prices and wages. However, the degree of inflationary pressure in the pipeline is now sufficient to warrant an increase in Bank Rate. Activity data in recent months have generally been stronger than expected, adding to the case for modestly tighter monetary policy.”
While there was no guidance in the statement on what they might do next, the 2 yr yield is up 3.4 bps to 4.78% maybe in response to the Mann vote. The pound though is little changed and the FTSE 100 is rallying by about 2/3 of a percent. I continue to believe UK stocks are very cheap and we own a few.
Also in Europe, the Eurozone September PPI was higher by 11.1%, about 700 bps above consumer price inflation of course with the help of higher energy costs which have hammered European industry.
German factory orders in September did rebound by 4.4% m/o/m after 10.1% drop in August.
I’ll give a stock market sentiment check after seeing some fresh data this week. The Investors Intelligence index saw a further decline in the number of Bulls to 42.6 from 45.4 while Bears ticked up to 18.5 from 16.4, though remaining very low as the Bulls have mostly gone to the Correction side and who want to buy the dip. The highly fickle AAII today saw Bulls drop by 3.7 pts to 34.1 while Bears rose by 7 pts to 48.4. The CNN Fear/Greed index yesterday closed at 35, smack in the middle of the ‘Fear’ category. The Citi Panic/Euphoria index remains well into Euphoria.
Bottom line, with most of the indicators, the mood is certainly less giddy as investors become more questioning of the sustainability of the AI trade. From a contrarian perspective that is a good thing but we’re no where close with the indicators I find helpful to the mood being bearish.
