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Restaurant Stocks Plunge on Escalating Trade War

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Trade war fears

The fear of the Trump administration escalating its trade war with China by restricting Chinese investments in US companies led to a selloff on June 25. The benchmark indexes, the S&P 500 Index (SPY) and the Dow Jones Industrial Average (DJI), fell 1.4% and 1.3%, respectively.

Restaurant companies

As fears of an escalating trade war grip the market, restaurant companies are feeling the heat. Of the ten companies considered for our analysis, only Jack in the Box (JACK) was in positive territory on June 25.

China’s growing economy, population, and lesser competition had prompted many US restaurant companies to expand their businesses in China. However, the trade war could negatively impact Chinese consumer sentiment, which could lead consumers to boycott US restaurants in support of national objectives.

Earlier, in a dispute over the South China Sea, an international tribunal ruled against China, which led to anti-US protests. The implementation of tariffs on technological products could also increase costs for restaurant companies that have been focusing on making technological advancements. The increase in expenses could put pressure on their margins, thus lowering their earnings. All these fears of declining earnings and sales in China appear to have prompted a fall in restaurant companies’ stocks.

On June 25, Papa John’s (PZZA), Domino’s Pizza (DPZ), Wendy’s (WEN), and Chipotle Mexican Grill (CMG) saw their stocks fall 5.5%, 4.4%, 3.6%, and 3.4%, respectively. McDonald’s (MCD), Starbucks (SBUX), Yum! Brands (YUM), and Darden Restaurants (DRI) fell 2.9%, 1.1%, 2.2%, and 1.4%, respectively.

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