Notes from the field

Economic Indicators

August 4, 2023

Moderating wage pressure could benefit restaurants

The outlook for select restaurant companies appears to be promising, as the twin pressures of rising labor and commodities costs shows signs of easing. The industry is still grappling with challenges that have weighed heavily in recent years, including difficulty finding workers in a tight labor market. Nevertheless, leading businesses continue to report strong sales growth, and well-run businesses appear to be well positioned as customer traffic remains high and operating conditions improve. And though it sounds counterintuitive, moderately priced chains may fare well in a potential recession as customers trade down from more expensive eateries.

Dollar weakness could support international stocks

U.S. dollar dominance appears to be in question after an 11-year bull run. While that has implications for U.S. assets, a continuing downward trend would be welcome news for investors in international stocks and bonds, where currency translation has eroded returns in recent years. Markets outside the U.S. are already showing signs of a currency tailwind. European stocks, as represented by the MSCI Europe Index, have generated strong returns as the dollar has lost ground against the euro, the yen and most other currencies.

Dividends are playing a greater role

Dividend-paying stocks could take on greater prominence if global economic growth continues to slow and market volatility returns. This is an area where international markets have had an advantage given the higher number of dividend-paying companies headquartered outside the United States and the emphasis they place on returning cash to shareholders. While there are many solid dividend payers in the U.S., international and emerging markets tend to offer a better hunting ground. As of May 31, the MSCI ACWI index lists more than 600 companies based outside the U.S. that offered hefty dividend yields of between 3% and 6%, compared with about 130 in the U.S.

Appealing yields make housing bonds attractive

Investing in housing bonds may sound contrarian given the nationwide softening in home prices, but these securities remain attractive due to their yield. Demand is expected to hold up in many parts of the sector, where state housing agencies work with middle-to-lower income first-time borrowers to secure mortgage financing at attractive terms and assist with down payments. Some of these bonds also benefit from guarantees from government-sponsored enterprises on the underlying mortgages.

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Economic Indicators

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