Dow Tumbles on China Data; McDonald's and Starbucks Finish Even After Earnings

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks tumbled today as a report out of China showing that manufacturing activity contracted spooked investors. The Dow Jones Industrial Average fell 176 points, or 1.1%, while the Nasdaq and S&P 500 both dropped more than 0.5%. What pushed stocks down was a reading of 49.6 in a Chinese Purchasing Manufacturing Index, showing manufacturing declined slightly, the first time it's done so in six months in the world's second largest economy. Back home, the day's economic data came in essentially even with expectations as initial unemployment claims totaled 326,000 last week, and existing home sales numbered 4.87 million in December.

Meanwhile, earnings season continued to march on. Among the big names reporting results after hours was Starbucks , which was trading roughly flat following the session as it beat earnings expectations but missed on sales. The coffee king saw per-share profit jump 25%, to $0.71, on estimates of $0.69, while sales improved 11.8%, to $4.24 billion, but that was short of the consensus at $4.29 billion. Comparable sales were up 5%, and jumped 8% in its China/Asia Pacific region. CEO Howard Schultz noted that, despite a weak holiday season for retailers, "Starbucks' unique combination of physical and digital assets positions us as one of the very few consumer brands with a national and global footprint to benefit from the seismic shift underway." For the full year, Starbucks sees earnings of $2.59-$2.67, and revenue growth of 10% or more. Analysts project full-year earnings of $2.65. The global coffee chain had recently seen torrid growth for a company its size, as shares jumped 50% last year; but that growth seems fully priced in at this point as the stock trades at a forward P/E of 28.

This morning, rival McDonald's provided its own quarterly earnings report, finishing up 0.5% as a result. Still, it wasn't a particularly impressive report for the Golden Arches as the company admitted to having a "customer relevance" problem. U.S. same-stores fell 0.2% for 2013 on a 1.6% decline in traffic, and those figures were only marginally better globally. CEO Don Thompson conceded that 2013 was a "challenging year." Figures for the fourth quarter were similar, as comps fell 1.4% in the U.S., but grew 1% in Europe, and the company said January comps were tracking flat. Earnings per share beat estimates by $0.01, while revenue grew just 2% to $7.09 billion, falling slightly short of expectations.

However, what was perhaps most striking about McDonald's earnings release was not in the numbers, it was the way management avoided talking about food in lieu of bland business boilerplate. The company has struggled under Thompson, and it doesn't seem like a surprise given meaningless statements like this: "We begin 2014 with a renewed focus on the global growth priorities that are most impactful to our customers. We are uniting consumer insights with innovation and consistent execution to optimize our menu, modernize the customer experience and broaden accessibility to Brand McDonald's." I'm not sure what optimizing the menu, or uniting consumer insights means, but at a time when fast-casual stars like Chipotle are stealing business from McDonald's by simply cooking good, fresh food, it seems like McDonald's desperately needs to step up its product quality and take a page from its rival's playbook.

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Fool contributor Jeremy Bowman owns shares of Chipotle Mexican Grill. The Motley Fool recommends Chipotle Mexican Grill, McDonald's, and Starbucks. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald's, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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