Why McDonald's is pulling the Dow lower

The Golden Arches shares are down a day after President Obama called for a boost to the minimum wage to $9 an hour. A coincidence? Maybe not.

By Charley Blaine Feb 13, 2013 4:01PM
© Tim Boyle/Bloomberg via Getty ImagesThe stock market isn't doing much a day after President Obama basically thumbed his nose at the Republican opposition. But the Dow Jones industrials ($INDU) are down because of one thing he proposed: a boost in the minimum wage from $7.25 an hour to $9.

That's pulled shares of McDonald's (MCD) lower -- and a number of fast-food restaurant stocks as well -- because all depend on cheap labor. If Congress were to agree to the minimum wage boost -- which is unlikely -- the 24.1% increase will boost their costs. And all have had to deal with higher food costs in the last year.

Mickey D's was down $1.31 to $93.79 Wednesday afternoon, subtracting 10 points from the Dow. That has more than offset the nice gain General Electric (GE) was enjoying after Tuesday's announcement that GE is selling its remaining interest in NBC Universal to Comcast (CMCSA). GE was up 74 cents to $23.32, adding 6 points to the Dow.

The reason McDonald's is weighing on the Dow is its price. The Dow is a price-weighted index. The higher the stock price, the more it influences the index. McDonald's stock price is the fifth highest among the 30 Dow stocks, after IBM (IBM), Chevron (CVX), 3M (MMM) and Caterpillar (CAT).
GE's price is the sixth lowest, ahead of Alcoa (AA), Bank of America (BAC), Hewlett-Packard (HPQ), Cisco Systems (CSCO) and Intel (INTC).

Meanwhile, shares of Burger King Worldwide (BKW), Jack in the Box (JACK), Yum! Brands (YUM), the owner of KFC, Taco Bell and Pizza Hut, and Sonic (SONC) were all lower as well.
Not all of the declines were due to the minimum wage increase proposal. Some was due to a 0.1% increase in retail sales in January. The increase was in line with economist estimates but still seemed to weigh on the market.

That's because most analysts believe retail sales were held back by a 2 percentage increase in the Social Security tax rate to 6.2% from 4.2%. The 6.2% had been trimmed to 4.2% in 2011 and 2012 to help boost the economy. The 6.2% rate was first established in 1990.

That's partly true, says money manager Hugh Johnson of Hugh Johnson Advisors in Albany, N.Y. Another factor weighing on retail sales may be that income-tax refunds were delayed because of wrangling over taxes between the Obama administration and Congress, he said.

So, the availability of tax forms was held up, and the Internal Revenue Service said it wouldn't start to process returns until February. That may have trimmed some $9 billion in sales out of the economy.

There's a last issue with McDonald's specifically.

The stock had been outperforming the Dow since early December and hit $96.32 on Feb. 1, the same the Dow had its first close above 14,000 since October 2007. If its 14-day relative strength index is any indication, the shares had become overbought. RSI is a measure of stock-price momentum. A reading above 70 suggests a stock is overbought. On Feb. 1, McDonald's RSI was 83. It was in the low 60s on Wednesday.

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21Comments
Feb 13, 2013 5:59PM
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One of the biggest issues facing all of the United States is the debt. Since 2000, the national debt has climbed from 2 trillion to 8 trillion, now over 16 trillion and still climbing. Almost 30% of all expenditures consist of interest on that debt. This country has become an "entitlement" country with almost 1/2 the population on some sort of government subsidy. Government states that "folks should pay their fare share in taxes", yet 9% of the population pays more than 95% of all taxes collected. More than 1/2 the population pays no federal income tax at all.  Our country has the highest corporate tax rates of all the modern industrialized nations (35% compared to 15-19% in other countries).  One of the reasons folks won't work is there is no reason to work. If a family of four lives on unemployment, receives food stamps, gets housing benefits, recieves government provided health care, receives school breakfast/lunch for the children, why give up all that and work for a living? Our government has created the largest entitlement state ever in our history and its only growing. And please don't call social security/mediare "entitlements". Every hard working citizen (note the word) has paid INTO the system during their entire working lives. The reason for the insolvency of both Social Security and Medicare is that our government in the past has not made these funds "restricted" for social security/mediare only. The funds have been borrowed against for other social programs and has put a strain on the solvency of the programs.  Our government has created "Animal Farm" where the citizens live by one standard, while those that govern live by another standard (one term in the House or Sentate = lifetime pension and benefits). I'm most of us would want that gig. Its time that our "representatives" actually represent us instead of their own politcal interests. Lastly, our debt is also a product of insane spending. The amount of "pork" in each bill passed through the House and Senate is insane. Yet, "thats business as usual in Washington. Puleeeeeeeeeeeeeeeeeeeeeese.
Feb 13, 2013 5:32PM
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I turned off that idiot making the State of the Union speech as soon as I heard him talking about how WE doubled the distance a car could go on a gallon of gas and how WE gained 600K manufacturing jobs. You couldn't even make those kind of sh*thead lies up on a cartoon.
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Raising the minimum wage will make it harder to find that first job if you are a teenager.  It does this because there will be fewer jobs due to the increase in wages paid by the employer.
Feb 13, 2013 5:10PM
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yea right 9 dollars and hour, why stop there? how 'bout 40 dollars and hour!! let's just eliminate the ladder at which to 'climb up' and just bankrupt all businesses outright, that's what this pig obama is doing anyway, staggering taxes, staggering unemployment!! where the hell is the happiness in the land?? seriously, where is the OBVIOUS prosperity and good paying jobs that can sustain a mortgage, McD's jobs' are for the 'beginners" you can't keep raising the minimum wage until it becomes too expensive to hire ANY kind of help!!How's a business supposed to stay afloat if EVERYONE gets the same pay?!

 

 I mean that's just business 101, you don't need an economics degree to see that!! we have this outright idiot liberal marxist pig who doesn't understand what it means to make business work, or make payroll, he just 'campaigns' his way thru life in office pandering to the idiot moron voter the mindless drones that make up the obamazombies in this nation, and you wonder why we're fukkkked!!??? my God!! what the hell is gonna happen to us in the next 4yrs!!!

 

 meanwhile any of you idiot obama voters want to explain why copays that were $5 are now 10, specialist visit copay that were $20, are now $30, doctor copays that were $10 are now $20?? hmmm??? Blue Cross/Shield in this case, you wanna explain why those are goin' up??? hmmm wonder why, oh just another part of "free" healthcare

Feb 13, 2013 6:59PM
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He said "... for those who work full time."  How f*cking STUPID!!
Feb 13, 2013 6:14PM
Feb 13, 2013 8:12PM
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Excuse me, some where along the line I got lost.  We are going to pay some kid that maybe didn't even finish high school, can't make correct change with out a machine telling them what it is or speak decent English, nine dollars an hour so he won't be in poverty?  Then what do we pay the kid that finished school, went to trade or tech school and got some more education, skills, and learned more and got a better position.    What do we pay the kids that went even further and got a degree or more.  Well,  maybe in this ever cascading chain of  increased pay for all we catch up to the CEO levels of 6 or seven million dollars a year or will they just move up too, 3 or 4 billion dollar  salaries with bonuses.  I'm sorry but this is a dog chasing it tail.  There will always be people on the bottom of the pay scale: no skills, no knowledge, no pay, if you want more then go do something to get it.  We can't just give it to you 'cause you're there.   Moving the "poverty line" up will only price us out of the world market and then nobody will have anything. 

 Education, Skills and Work will earn earn higher pay not moving a line on a chart..  Just as a remainder; most of the world wishes they could live as good as poor Americans.  Don't believe it, then tell me why they are willing to risk life and liberty to get here?   

Feb 13, 2013 7:03PM
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Who said what about 3 years ago and I get all these incredible emails profesing how great this jerk is.  He is an idiot...and, send the drones and have said that before.  His "speech"...was a video type and teleprompter....and, nothing positive.  He is snake-oil and all will see it if they have not.  Darn, are we all that dumb! 

 

Who cares about MC and AP...they need this welfare crap to survive.  Analyze this.....inflaton is going to go rampant.  The corporations with these trillions....do not have them.  Get a clue. 

Happy Socialism!

 

Feb 13, 2013 6:48PM
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Economics vs. Humanity........and now you know why Jesus is p!ssed.
Feb 14, 2013 10:57AM
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Endeavor....YUM,Yum...Isn't McDonalds.....That's Taco Bell, Pizza Hut and KFC..
Feb 14, 2013 11:18AM
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I don't believe this is "one quick jump" to 9 bucks..?  Maybe, but usually graduated ?

 

And some business or jobs, would probably be exempt, such as tipped employees, farmwork or other non- interstate businesses..??

 

Before wailing about it..We should know how the move or Law plays out.

Feb 14, 2013 11:10AM
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I think $9 per hour, will still be at the "poverty level."  Although it's nice to know, that you care??

 

Yes we pay those kids and others that are trying to supplement their incomes like, single mothers, second job holders or a main bread-winner, getting by; Then you bitch about them not knowing how to "count change back" or not getting your EXTRA Ketchup packet,that you hoard at home.

 Then if an illegal or green card immigrant takes the job..You whine,bitch and cry..

I know your Kind..

GET OFF MY LAWN....

"For the Grace of God, there go I....."

Feb 13, 2013 5:01PM
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I'm not a big Obama fan, but getting the minimum wage up above starvation wages is probably the smartest thing I've heard come out of his mouth since he first showed up on the scene.  If that is a problem for the fat cats that have been sucking the main stream American dry due to their leveraged financial advantage then I have no sympathy for them.  Do some very simple math and figure out based on your own living expenses what even $9/hour gets you even if you worked full time.  I hear all the bitching and complaining about "deadbeats, welfare people, public assistance, yada, yada", but this is the first thing I've heard that might...MIGHT...give them some incentive to go back to work and get off unemployment, welfare or whatever else their on.  I'm sorry if the fat just want to keep getting fatter (and I'm not talking about Big Mac consumption here folks), but maybe it's time to leave a little pan drippings for someone else to get just a taste.
Feb 13, 2013 4:44PM
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MCD sells garbage food that is making the fat American even more fat. 
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