American consumers are cutting back on the bucks — and the slide in Starbucks stock heralds a rough future ahead in markets.
"Starbucks is the ultimate 'strong economy' (indicator)," Dan Fitzpatrick, founder of StockMarketMentor.com, told Investor's Business Daily's "Investing with IBD" podcast. "I think that the economy's actually really weak for a lot of different reasons, but my latest one is Starbucks."
Audio Version Of Podcast Episode
The coffee chain's shares got slammed after it reported a miss in earnings and sales during its second-quarter report on Tuesday. Starbucks stock fell nearly 16% on Wednesday to the lowest price in nearly four years. Wednesday also marked Starbucks stock's largest volume for many years, according to MarketSurge data.
"Our performance this quarter was disappointing and did not meet our expectations," said Starbucks CEO Laxman Narasimhan. He made the comment in the company's earnings call on Tuesday. "In a number of key markets, we continue to feel the impact of a more cautious consumer … and a deteriorating economic outlook has weighed on customer traffic, an impact felt broadly across the industry."
Meanwhile, Starbucks stock currently holds a Composite Rating of 38, according to IBD Research, and is ranked 32nd within its Retail Restaurants group. The fast-casual chains Cava and Chipotle currently lead the group.
Starbucks Stock As A Bellwether
Fitzpatrick says a move in bellwether stocks like Starbucks can signal what's ahead for the broader economy.
"If people aren't frequenting Starbucks as much, even if they're doing it four days a week instead of five, you're going to see a chart like that," said Fitzpatrick. "The individual stocks can tell you a lot."
The Street has long seen Starbucks as a bellwether of U.S. consumer sentiment. People consider their pricey coffee drinks discretionary household expenses, or purchases consumers cut back on or stop buying altogether if needed. In a strong economy, consumers with excess cash will buy more Starbucks offerings. Additionally, they will likewise will pull back on spending in lean times.
Why Watch The Breakouts?
Fitzpatrick says Starbucks stock is typical of why it's important to look at breakouts as bellwether stocks. "You've got to focus on breakouts all the time, even if you're not buying them when breakouts are working — that's the sign of a strong market," he said.
"Over the past several months, breakouts have been working really well," said Fitzpatrick. "But when the breakouts stop working, you don't even have to look at the S&P or the Nasdaq to know that this is a weak market."
Follow Mike Juang on X at @mikejuangnews and on Threads at @namedvillage.
