The Fed Sinks the Market, and Long-Term Investors Shouldn't Care
The Dow Jones Industrial Average (INDEX: ^DJI) closed down 0.38% today while the S&P 500 (INDEX: ^GSPC) was essentially flat. The reason for the downbeat day? The fact that minutes from the Federal Reserve's June meeting indicated that more quantitative easing could be in the cards -- if matters got worse. This is the same concern that sent the market lower on the 6th, when tepid job-growth numbers were bad, but not bad enough that Wall-Street thought it could expect additional easing. Looks as if the Street's thesis played out.
Here is more complete a look at how the indices fared today.
Gain / Loss
Gain / Loss %
|Dow Jones Industrial Average|
It could be worse ...
The lack of action from the U.S. central bank has rippled beyond our shores, and Brazilian stocks also headed lower on the lack of additional economic stimulus. Investors are now expecting a rate cut from Brazil's own central bank by half a point down to 8%, a new low. Brazil has been through the wringer recently, and things look as if they may get worse before they get better.
There are reports that the government is expected to cut the domestic growth forecast for 2012. Current government estimates are for 4.5% growth, which seems ambitious in contrast to analyst expectations for roughly 2% growth.
Not only that, but Brazil's retail sales also fell in May by the most in 36 months, as the government's attempts to spur consumers spending have been ineffective. This could have an outsized impact on Brazilian-focused companies like Arcos Dorados (NYS: ARCO) and MercadoLibre (NAS: MELI) . Both companies collect a majority of their revenue from Brazil, but because both are based in Argentina, they will realize currency pressure from the slipping Brazilian currency.
No, Chicken Little, the sky isn't falling
Long-term investors realize that this is all market noise. I still remain bullish on each of these stocks for the long run because they're great companies with proven models. Both companies have become markedly cheaper following concerns about shaky growth in Latin America, and Brazil in particular, but they remain perfectly Foolish stocks for the long-term investor.
Arcos Dorados is the exclusive franchiser of McDonald's (NYS: MCD) in Latin America, and MercadoLibre is effectively a Latin carbon copy of eBay (sans PayPal). I own both McDonald's and eBay in my portfolio and have watched them weather market storms beautifully because they have winning models. Owning great companies like these is a proven way to stomp the markets over the long haul, and that's what investing is all about. I see a similar long-term story for MercadoLibre and Arcos.
While the lack of action from the Fed is uninspiring, and continued weakness in Brazil has emerging-market investors running scared, patient investors know good things come to those who wait. That's why we named another monster Brazilian growth story as The Motley Fool's Top Stock for 2012. Just like Arcos and Mercado, it's a company taking a proven model from one of our favorite domestic companies and overlaying it to a market with huge growth.
It's a no-brainer investment, and it's our chief investment officer's top pick for this year. Find out why.
At the time this article was published Austin Smith owns shares of eBay and McDonald's. The Motley Fool owns shares of McDonald's, MercadoLibre, and Arcos Dorados.Motley Fool newsletter serviceshave recommended buying shares of McDonald's, eBay, and MercadoLibre. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.