Earnings Surprises Highlight Week on Wall Street

McDonald’s (NYSE:MCD) posted a breakout third quarter, tech earnings blew past estimates and China cut rates amid a slower economic growth environment.

It was another wild week on Wall Street: Here’s what you might have missed.

McDonald’s Big Earnings Beat

The world’s biggest burger chain shocked investors on Thursday morning, ahead of the opening bell, when it posted much better-than-expected quarterly results. The company revealed earnings per share of $1.40 on revenue of $6.62 billion. That compared to expectations for profits of $1.27 a share on sales of $6.41 billion.

More than that, though, McDonald’s posted the first period of positive comp-sales growth in two years. In the U.S., sales at the chain’s restaurants open 12 months or longer saw a 0.9% increase. The company said that was thanks in part to the introduction of the Premium Buttermilk Crispy Chicken Deluxe sandwich, and breakfast offerings including a “return to the classic recipe ingredients” for its famed Egg McMuffin.

Internationally, comp sales jumped 4.6% during the period thanks to outperformance in Australia, the UK, Canada and Germany.

What made it a win for McDonald’s in the third quarter was a back-to-basics approach that included making sure customers got a more accurate order more quickly.

The performance sent shares of the company up nearly 10% on the session to a fresh record high, and helped the company add $7.85 billion in market value.

Tech Earnings Turn 3Q Season on a Dime

While the third-quarter period had been so far full of lackluster results thanks to a stronger dollar and a global economic slowdown, big U.S. tech firms managed to defy expectations.

On Thursday, tech heavyweights Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet, the parent company of Google (NASDAQ:GOOGL), all posted better-than-expected quarterly figures that sent shares surging in after-hours trade.

During 3Q, Microsoft broke out three operating divisions in an attempt to turn around its business to focus on cloud-based products, moving away from the personal computing unit as sales have slumped. Thanks to its earning beat, the company on Friday saw its biggest one-day market value gain and highest close since 2000.

Amazon revealed an unexpected profit during the third quarter thanks to its continued investment in cloud-based services. The company’s sales also jumped more than expected thanks in part to its efforts to beef-up its Prime membership through the one-day Prime Day sale that it said saw more discounts than Black Friday. The company has also added one-day shipping to several big markets.

Alphabet, meanwhile, saw its first reporting period since folding all of its divisions under one holding company. The Google parent said the search business saw a 19% increase in online-ad revenue in the first half of the year. The company said it started showing more ads with free search results, which helped boost the number of clicks, giving the company more ad revenue.

China Cuts Rates, Shows Slower Growth

On Monday, China said its economy grew at a 6.9% pace in the third quarter, its slowest since the global financial crisis. The world’s second-biggest economy was hit by global-growth concerns and slowing investment in the region. Expectations were for a 6.8% growth rate, according to the National Bureau of Statistics.

While many investors expected the next step for China to be more monetary policy action, they didn’t know exactly when it would come. And on Friday, the nation pulled the trigger, cutting its benchmark interest rate by 0.25% -- its third rate cut since November 2015.

The action helped fuel concerns that China would be in for a hard landing – and that the global economic slowdown would only get worse from here. But Rod Smyth, chief investment strategist at Riverfront Investment Group, said he sees more likelihood for a soft landing rather than a hard one.

“We’ve seen a change in monetary policy. Think it was well flagged. You see it not just in cutting interest rates, which is an old-fashioned thing for them to do, but more importantly in money-supply growth which has really started to pick up in bank lending which has really started to pick up. I think China is back, very clearly, on the stimulus path,” he said.

He added that in the third quarter, the nation’s growth came more from consumption than investment, which he said is a good sign of things to come.

“China is now fully engaged in the process of regenerating growth in the economy. Not the way they used to: More targeted. But they’re going to go back to a program of more infrastructure spending, linking some of these ghost cities with major cities, and therefore making them relevant,” he added.

On Tap Next Week

All eyes are on the U.S. central bank next week in the wake of action from the People’s Bank of China and a speech from European Central Bank President Mario Draghi, who in the middle of the week, left the door open to more monetary policy action in December.

The Federal Reserve begins its two-day policy-setting meeting next Tuesday, which concludes with a statement on Wednesday at 2:00 p.m. Wall Street largely anticipates no action to move interest rates in the U.S. higher at this meeting; instead they expect the Fed to hold off until at least December, if not well into next year.

Along with a Fed decision is a slew of key reports for investors to parse for any signs of how the U.S. is holding up in the midst of a global economic slowdown.

These are the reports to watch:

  • Monday: New home sales
  • Tuesday: Durable goods, S&P/Case-Shiller home prices, consumer confidence
  • Wednesday: FOMC statement
  • Thursday: Weekly jobless claims, 3Q GDP reading, pending home sales
  • Friday: Personal income and spending, Chicago PMI, consumer sentiment