The Market Margin

Business & finance news, analysis and case studies. Simple words, serious work. Not financial advice.

[The Market Margin @TheMarketMargin]

Sources: MSCI via Financial Times, Microsoft, Alphabet, Amazon, Meta and Nvidia earnings reports and guidance, Yield Theory, BLS, CME FedWatch, Investrade, FactSet, Citi, CNBC, Fox Business, Barchart

[The Market Margin @TheMarketMargin]

Shares of toothpaste, cereal and diaper makers just had their best month since 1998. Global consumer staples stocks rose 10.6% in October, per MSCI.

Healthcare came close behind. Tech went the other way.

Blame the AI bill. Microsoft, Alphabet, Amazon and Meta plan to spend about $730 billion on chips and data centers this year.

Wall Street expects even more in 2027. Investors now want to know when that money comes back.

Rates make the wait harder. October inflation came in hotter than forecast, and traders expect a Fed hike in December.

Treasuries pay close to 5%, so a data center that turns a profit in 2030 looks less attractive.

The midterms added fears of tougher rules for data centers. On Nov. 5, chipmakers sank, and Nvidia lost more than 9%.

Healthcare runs on different money. People keep buying medicine and insurance, whatever happens to AI budgets.

The sector's latest quarterly earnings beat forecasts by more than any other sector's, per FactSet. On Nov. 9, Citi raised healthcare to overweight and cut tech to neutral.

The AI story still has strong numbers: Nvidia's sales more than doubled last quarter.

When stocks bounced on Monday, tech gained almost twice as much as healthcare. Nvidia reports on Nov. 17, and chip stocks will show whether good results still matter.

[The Market Margin @TheMarketMargin]

@BillJames45 yeah, you see it on the floor way before the P&L

[The Market Margin @TheMarketMargin]

Why US restaurants take in more money and serve fewer people

1. More dollars, fewer guests

One in three US restaurant operators made no profit in the first half of 2026. Back in February, though, their trade group, the National Restaurant Association, was still calling for $1.55 trillion in sales this year.

The industry runs from drive-thrus and coffee shops to steakhouses, and the NRA expects it to employ about 15.8 million people this year. Right now it's growing in dollars and losing guests.

In September, 44% of operators had fewer customers than a year earlier and 42% had more. Traffic has fallen on net in 19 of the last 20 months.

The story goes back to the pandemic. Prices for eating out jumped 7.7% in 2022 and 7.1% in 2023, then rose another 4.1% and 3.8% over the next two years, according to the USDA.

Visits went the other way. Black Box Intelligence says the median restaurant brand now gets 21% fewer visits per location than in 2018.

2. Who sells what

McDonald's and Wendy's sell speed and low prices, while Chipotle, Cava and Sweetgreen charge a bit more for food made in front of you. Chili's and Texas Roadhouse give you a table and a server, and coffee chains like Starbucks are a category of their own.

Every chain lives on two numbers. Traffic is how many people walk in. The check is what each one spends. Same-store sales, often called comps, combine both for restaurants open at least a year.

Food and labor each take about 33 cents of every sales dollar. Hourly pay is up 41% since February 2020, and wholesale food is up 35%.

Comps only make sense once you split them. Chipotle's rose 2.1% last quarter, with 1.3 points from a bigger check and 0.8 points from more transactions.

3. The price loop

When costs rise, restaurants raise menu prices, and eating out gets pricier faster than cooking at home. In September, restaurant prices were up 3.5% year over year, compared with 1.8% for groceries.

Some guests then come less often, which spreads rent and other fixed costs over fewer people. Margins get squeezed, so operators reach for the next price hike, and a third of them end up without a profit while dollar sales keep rising.

This year made it all worse. The war with Iran choked oil shipments through the Strait of Hormuz, and gas passed $4 a gallon on March 31. By September, it still cost 34.2% more than a year before.

The NRA listed gas prices as one reason for cutting its sales forecast. Ground beef hit $7.06 a pound in September, up 6.3% from a year earlier.

Then came lettuce. In July, health officials traced a cyclosporiasis outbreak to shredded iceberg lettuce served at Taco Bell. The lettuce came from Taylor Farms de Mexico, and by the time the CDC closed the investigation in September, it had counted 12,883 illnesses in 21 states. Taco Bell's US same-store sales fell 4% in the third quarter, its first drop since 2020. Even Cava, which doesn't serve iceberg lettuce, said the scare hurt its July sales.

4. Who's getting it right

McDonald's had a rough quarter. US comps slipped 0.2%, its first drop after five quarters of growth, and bigger checks covered most of the lost visits, but not all.

Foot-traffic estimates put McDonald's US visits down 4.6%. Wendy's did worse, with US same-restaurant sales down 5.7% and, by our math, 268 fewer US restaurants than a year ago.

Chili's is the opposite story. Same-store sales rose 10.1% in the quarter ended Sept 23, with traffic up 6.4% and higher prices adding 3.7 points.

So Chili's raised prices and guests came anyway. Its sister brand, Maggiano's, lost 5.1% of its traffic in the same quarter, which suggests the price tag alone doesn't decide it.

The health trend is mostly about protein. Chipotle launched a High Protein Menu in December 2025, aimed at people on GLP-1 weight-loss drugs. In an NRA survey, 43% of GLP-1 users said they now order more high-protein items.

Salads have had a harder time. Sweetgreen's comps fell 12.8% in the first quarter, months before the outbreak, while Mediterranean chain Cava has never had a negative quarter as a public company.

Tech is the other big bet, and it can land you in court. McDonald's faces a lawsuit claiming its AI-assisted pricing tool breaks antitrust law. The company says its franchisees set prices, not the software.

Four mistakes people make reading this market:

Taking dollar sales for growth. After inflation, the NRA's 4.3% forecast for 2026 shrinks to 0.8%.

Reading comps without the traffic split. Texas Roadhouse grew comps 4.3%, but traffic rose just 0.7%, and comps for the first five weeks of the fourth quarter slowed to 1.5%.

Forgetting closures. About 2 points of Starbucks' 7.7% US comps came from shutting stores and sending their customers to nearby ones.

Assuming a value menu works the day it launches. In August, McDonald's CEO said only 60% of its US restaurants offered its menu of 10 items under $3.

5. Where this goes

US restaurants are growing on price. The chains doing well in 2026 are the ones still getting more people through the door.

If you follow the sector, split every report into traffic and check, and into real and nominal growth. We'd also track beef, gas and the share of sales through apps and loyalty programs.

The NRA expects growth to pick up to 4.8% in 2027. Sweetgreen says its comps turned positive in October, and McDonald's is building a new value menu for 2027.

The thing we'd watch most is whether traffic can come back without another round of deep discounts. Operators are cautious. In the NRA's July survey, 57% expected business to stay the same for the rest of 2026, 26% expected it to improve and 17% expected it to get worse.

[The Market Margin @TheMarketMargin]

Ray Dalio calls his 1982 self "an arrogant jerk." He told Congress a depression was coming, stocks rallied and he had to borrow $4,000 from his dad.

So he rebuilt Bridgewater to catch mistakes. Staff score each other's thinking from 1 to 10, boss included. Better track record, louder vote. We doubt most bosses would sign up for that.

[The Market Margin @TheMarketMargin]

Sources: National Restaurant Association (forecasts and operator surveys), BLS (CPI and average prices), AAA, USDA, CDC, Black Box Intelligence, Placer AI via Reuters, company earnings reports (McDonald's, Wendy's, Chipotle, Brinker International, Texas Roadhouse, Starbucks, Sweetgreen, Cava, Yum Brands)

[The Market Margin @TheMarketMargin]

Sources:
Berkshire Q3 report: https://t.co/4f5WwA1vjp
https://t.co/qBARSet8TR: https://t.co/QZzXLDCX1w
Fortune: https://t.co/dHBUjCcCia

[The Market Margin @TheMarketMargin]

Berkshire Hathaway CEO Greg Abel’s favorite stock right now is his own.

Berkshire spent a record $9.6 billion on buybacks in the third quarter. In the first quarter, it spent $234 million.

Across all other stocks, it was a net seller: $2.4 billion bought, $2.8 billion sold.

Abel kept buying in October, about $2 billion more. Since Oct. 1, as AI stocks crashed, Berkshire shares have gained about 14%, and the S&P 500 has lost about 4%.

[The Market Margin @TheMarketMargin]

Sources:
BLS: https://t.co/ILF4JCSlLs
Reuters: https://t.co/cV3ufKTFjj
Photo: Mushvig Niftaliyev / Unsplash https://t.co/bcPteVJkJ8

[The Market Margin @TheMarketMargin]

AI was supposed to start with office jobs. In October, those jobs grew by 70,000, almost five times their usual monthly pace.

The US added 165,000 jobs in total, while economists expected about 65,000.

Traders now put the odds of a Fed rate hike in December at 78%. Many AI data centers are built with borrowed money, and a hike would make that borrowing more expensive.

Under the strong total, 339,000 more Americans work part-time only because they can't get full-time hours.

[The Market Margin @TheMarketMargin]

Sources:
AP: https://t.co/QpbxTczT9V
Fortune: https://t.co/iQc7bpcjdo
EIA data: https://t.co/BavuP7nbTT
Ballot measures: https://t.co/0lWsnWpCPC
Photo: AUTHOR, LICENCE: https://t.co/IOVTg3l5IB

[The Market Margin @TheMarketMargin]

Democrats won Congress on Tuesday, and Texas elected a governor who promised to halt new data centers. By 2028, Texas is set to hold nearly 30% of US data center capacity.

The S&P 500 fell 4.4% today, its worst day since April 2025, with AMD down 14% and Nvidia down 8%. Rates weren't the trigger this time: the 10-year Treasury yield fell to 4.83%.

Power bills sit behind those votes. In a year, electricity got 26% pricier in Virginia, 22% in Ohio and 20% in Pennsylvania, all big data center states. Local ballots backed limits on data centers in 40 of 41 measures.

[The Market Margin @TheMarketMargin]

Oracle almost doubled its sales every year for a decade. Then in 1990, at $1 billion in revenue, it posted the only losing quarter of its first 20 years.

In a 1997 interview, Larry Ellison said his fix was to replace virtually the entire management team. The people running a $1 billion company were the same ones who had run it at $50 million, and he said those are different skill sets. So he asked colleagues of ten years to leave. He called it the hardest thing he ever did in business.

Oracle began when Ellison and three partners used IBM's own published research on relational databases to beat IBM to market. Later it ran ads that named rivals and compared test results. Some people found that rude. Ellison called it giving customers facts. His job, he said, was to take Oracle from the No. 2 software company to No. 1, past Microsoft.

His bet fit in one line: "the dawn of the Information Age, not the dawn of the PC age." Complex networks run by professionals and simple, cheap devices at home, just like TV. Cloud software works much the same way today.

He credits his success to doubting experts just because they're experts, a habit he traces to a strict father and teachers who wanted answers repeated like a parrot. Popular morality follows fashion, he argued, while real morality follows reason. Fear of failure drives him too. When failure feels even remotely close, he can't stop working.

His advice to young people was simple: learn to program, because computers do exactly what you tell them. He rated it above handwriting.

[The Market Margin @TheMarketMargin]

Sources:
Apple results: https://t.co/vxr10r6XLX
Apple call: https://t.co/nxvAuy2nVI
SK hynix: https://t.co/5akoOBIibv
Samsung: https://t.co/Rg67udHtTo
Photo: Apple Newsroom

[The Market Margin @TheMarketMargin]

Apple CEO John Ternus called memory prices "unprecedented" on Monday's earnings call.

iPhone sales rose 17% to $57.6 billion. Still, Apple expects gross margin to slip from 47.9% to 45-46% this quarter, mostly on memory costs. Macs and iPads will also be short of memory.

Memory sellers are thriving. SK hynix kept 80 cents of operating profit per sales dollar in Q3, while Samsung's phone and network unit lost money. Even Apple now pays the memory makers' price.

[The Market Margin @TheMarketMargin]

Sources:
Merck Q3 2026: https://t.co/gbVcscHEWI
Merck 10-K: https://t.co/3b9G9PVPVw
Regeneron Q3 2026: https://t.co/KYBYpIl5oA

[The Market Margin @TheMarketMargin]

Merck and Regeneron are running the same play. Both are moving patients onto a new version of their star drug as cheap copies close in on the old one.

Markets spent this week worrying about what AI costs. This quieter race will help decide how soon cancer and eye patients get cheaper medicine.

Merck, a US drugmaker expecting $67B in sales this year, gets nearly half of them from its cancer drug Keytruda: $8.6B last quarter, new form included. Its main US patent runs out in 2028. Keytruda Qlex, the same medicine as a quick shot instead of an IV drip, sold $830M, up from $35M a year earlier.

Regeneron, maker of the eye drug Eylea, already faces copies. US sales of old Eylea fell 41% from a year earlier, while the newer Eylea HD rose 62%. Together they slipped 1%.

Take Qlex out and Keytruda still sold $7.8B as an IV drip last quarter. That is the part copies can target in 2028. Merck has about two years to move it. Regeneron shows that even a working switch only keeps sales flat.

[The Market Margin @TheMarketMargin]

Sources:
Amazon Q3 2026 results (SEC): https://t.co/RENbsbm6TC
Amazon on 2026 spending, Feb: https://t.co/davNXKVXLt
Fortune, 2012: https://t.co/6HwBJ6mfMI
Photo: U.S. Air Force (Van Ha), public domain: https://t.co/sUSwnWzeNW

[The Market Margin @TheMarketMargin]

Amazon Web Services, the unit that rents computing power to other companies, made 63% of Amazon's operating profit last quarter on less than a quarter of its sales.

In results out today, AWS earned $17.8 billion on $46 billion of sales. Online stores, ads and Prime earned $10.3 billion on $156 billion. That is 39 cents of profit per dollar in the cloud and less than 7 cents in shopping.

"Your margin is my opportunity" is a favorite Jeff Bezos line, Fortune reported in 2012. Amazon still prices its store that way.

Amazon now expects about $220 billion in capital spending this year, up from roughly $200 billion in February. That spending turns into depreciation over the coming years, so we'd watch the cloud's margin first.

[The Market Margin @TheMarketMargin]

@BullTheoryio The real story is the vote. 10 to 2, both dissents for a hike. A governor and a regional president last dissented together in 1992