MCD is 19% off its high. Is this the entry?

Corporate Overview

The market's historic highs lasted exactly as long as the optimism that built them. After the S&P 500 breached 7,500 and the Dow crossed 50,000, a single week's worth of inflation data and a Fed leadership transition was all it took to remind investors that gravity still exists. Bond yields are surging, rate cut expectations have been erased entirely, and the AI trade that carried markets for months is now selling off on good news. That is not a healthy market. That is an exhausted one.

Daly Asset Management cuts through the noise with systematic, data-driven strategies and zero hidden fees. Independent thinking, not Wall Street consensus.

Stock of the Week

Ticker: MCD | Sector: Consumer Discretionary | Market Cap: $195.5B | Yield: 2.71%

Why Now:

McDonald's is not a broken business. It is a discounted one. Shares closed at $274.97 on May 14, roughly 19% below their all-time closing high of $339.17 hit in late February, and the selloff has created a genuine entry point for patient, income-oriented investors.

The valuation case is straightforward. MCD trades at a trailing P/E of 22.69x and a forward P/E of 20.79x, meaningfully below its five-year average closer to 25-26x, and a significant discount to peers like Starbucks and Domino's. At the same time, the business is not deteriorating. Q1 2026 EPS of $2.83 beat estimates of $2.75, while revenue of $6.52B topped the $6.48B consensus. Global comparable sales grew 3.8% and systemwide sales rose 6%. The company gained market share in nearly all of its top 10 markets.

The growth engine is also expanding. McDonald's opened 2,275 net new stores in 2025 and is projecting 2,600 openings in 2026, targeting a 50,000-store global footprint. The McValue platform and the May 6 launch of new beverage refreshers are designed to capture younger, Starbucks-adjacent traffic. On the capital return side, MCD is one dividend increase away from Dividend King status, with a 49-year streak of consecutive increases and a free cash flow payout ratio of 71% providing solid coverage.

Risks:

Beef cost inflation remains the most specific near-term threat. Tariff-related price spikes on imported beef directly compress restaurant-level margins, and the recent executive announcement on tariff relief is subject to reversal. JPMorgan cut its price target to $305 from $325 post-earnings, and Stifel dropped its target to $290, both citing margin concerns and pressure on lower-income consumer traffic. A sustained consumer spending pullback tied to geopolitical volatility and high gas prices could push shares toward the $260 to $271 support zone.

Verdict:

At 21x forward earnings with a near-3% yield and 2,600 new stores coming in 2026, MCD is a discounted compounder for investors willing to wait out the macro noise.

Market Snapshot

The most notable divergence in the data is the aggressive spike in 10-Year Treasury Yields and WTI Crude Oil, which acted as a major catalyst for a risk-off rotation away from small caps and broader equities toward defensive blue chips.

While tech and small-cap assets retraced heavily under the pressure of higher borrowing costs, the Dow Jones Industrial Average managed to carve out a slight weekly gain, highlighting a clear divergence where investors favored large-cap defensive value over high-beta exposure.

Meanwhile, safe-haven gold experienced sharp profit-taking alongside traditional risk assets, breaking its standard inverse relationship with equity corrections in the face of a rapidly strengthening U.S. dollar.

Market Commentary

Trump-Xi Summit Leaves Chip Sector Hanging

The market wanted clarity on AI chip exports to China. It got vagueness. After Trump and Xi concluded their two-day Beijing summit Friday, no resolution emerged on Nvidia's ability to sell into China, with U.S. trade representative Jamieson Greer punting the decision to Beijing. The sector paid for it: Nvidia and AMD each fell nearly 4%, ARM and Intel slumped around 8%, and Micron dropped nearly 6%. The Nasdaq shed 1.74% on the day. When geopolitical ambiguity is your risk factor, "wait and see" is not a thesis.

BofA's Inflation Warning Is Not Background Noise

Bank of America's Michael Hartnett put a number on what markets have been quietly pricing: producer prices are running near 6% year-over-year and CPI is approaching 4%, driven by energy, transportation, goods, and rents. The path from here is binary. If monthly CPI gains average 0.1%, annual inflation drifts toward 3%. If the recent 0.4% monthly pace holds through November, the read hits 5.2%.

Hartnett's historical data is sobering: once CPI crosses 4%, the S&P 500 has averaged a 4% drop over the following three months and a 7% decline over six. That threshold is no longer hypothetical.

Iran Ceasefire on Life Support, Strait of Hormuz Still Blocked

The one-month U.S.-Iran ceasefire is fraying fast. Trump called Tehran's latest peace proposal a "piece of garbage" from the Oval Office Monday, while Iran demanded sanctions relief and retention of influence over the Strait of Hormuz. No military resumption was announced, but no deal is close either. The Strait, which carried roughly one-fifth of global oil and LNG before hostilities began, remains blocked. Energy prices stay elevated as a direct result. Until there is a credible resolution, oil-exposed equities and any rate-sensitive sector sitting on top of an energy cost assumption should be treated with caution.

Wedbush: AI Monetization Is Just Starting, Tech Has 10% Upside

While chip stocks sold off Friday, Wedbush's Dan Ives is looking past the noise. In a Monday note, Ives called this earnings season a "wake-up call for tech skeptics," pointing to AMD's strong Q1 print and AI-driven revenue inflections at Palantir, Datadog, Snowflake, and ServiceNow. Ives sees another 10% to 12% upside in tech by year-end, driven by cloud deal flow at Microsoft Azure and Amazon AWS that he believes the Street is underestimating. His highest-conviction call within the AI buildout: cybersecurity vendors including CrowdStrike, Palo Alto Networks, Zscaler, and Rubrik, which he argues become more essential, not less, as enterprise AI deployment scales.

Tactical Map

• Cash and short-duration debt over small-caps: A 3-year record high inflation print and poor Treasury auctions pushed the 30-year Treasury yield to 5.12%, triggering a 2.4% plunge in the rate-sensitive Russell 2000 Index.

• Quality large-cap equities over high-multiple tech: Despite near-term valuation pullbacks from geopolitical uncertainties, Morgan Stanley raised its S&P 500 target to 8,000 on strong corporate fundamentals, where an exceptional 83% of S&P 500 companies have beat Q1 earnings expectations.

• Upstream energy and hard commodities over defensive utilities: Brent crude oil surged toward $109 per barrel as Middle East ceasefire instability reignited supply-side constraints, while utilities plummeted roughly 5% in May due to capital cost pressures from surging yields.

Theme to Watch

Driven by the Trump-Xi Beijing Summit and compounding disruptions from the Middle East conflict, global trade is experiencing accelerated fragmentation into a bipolar economic system. This shift moves the global economy away from traditional, low-barrier globalization toward rigid trade regionalization and strict technological guardrails.

This structural decoupling structurally raises baseline costs, drives localized inflation, and permanently penalizes supply networks that rely on uninhibited, cross-border access. Over the long horizon, corporate survival and market share will depend entirely on state-sanctioned industrial policies rather than pure market competition.

Forward View

• May 17, 2026: China Retail Sales & Industrial Production at 10:00 PM ET.

• May 18, 2026: Japan Preliminary GDP Growth Rate at 7:50 PM ET.

• May 20, 2026: US FOMC Meeting Minutes at 1:00 PM ET.

• May 21, 2026: Japan Inflation Rate at 7:30 PM ET.

Final Words

The macro backdrop is clear: elevated inflation, rising yields, geopolitical fragmentation, and an exhausted market demand discipline over speculation.

Daly Asset Management navigates it all with systematic, data-driven strategies and zero hidden fees — because independent thinking, not Wall Street consensus, is how wealth is built.

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Disclosures: This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always conduct your own due diligence or consult with a financial advisor before making investment decisions.