The S&P 500 Index has rebounded by about 2% this week after a selloff last week that was driven by weaker employment numbers and continued tariff turmoil. The 10-year treasury yield has declined slightly to 4.2%, and market participants now put a 97% chance for a rate cut at the Fed’s September meeting. Against this backdrop, two earnings reports from companies focused on the consumer suggest spending trends remain relatively positive. However, the trend appears to be that consumers are spending more per visit, not increasing their overall number of visits.
The House of Mouse
Disney# reported second quarter earnings this week that were better than expected. This was driven by a strong showing in its theme parks business, part of the Experiences segment. Also, the direct-to-consumer division, led by Disney+, turned a solid operating profit compared to no profit the year earlier. Good news in the Experiences segment was offset somewhat by ongoing weakness in Disney’s linear TV networks business as consumers move toward streaming through Disney+, Hulu and ESPN+. Revenue in the linear segment fell by 15% while operating income dropped 28%.
Disney World delivered record Q3 revenue, while broader gains were fueled by increased guest spending, higher hotel occupancy, and a rise in cruise volumes. Bookings for the Experiences segment are tracking about 6% higher so far in the current quarter, signaling continued strength across parks, cruises, and resorts. Still, attendance growth at domestic parks came in flat compared to last year, meaning per person spending has been driving revenue higher.
Meanwhile, Disney is attempting to adapt to changing consumer preferences. Disney has inked a deal with the NFL to acquire the NFL Network and other media assets in exchange for the NFL taking a 10% equity stake in ESPN. It also reached a $1.6 billion agreement with the WWE for exclusive rights to high-profile events like Wrestlemania. Disney thinks grouping streaming services and networks in larger bundles will lead to greater efficiencies, more subscribers and lower churn. Despite a decent quarter and the NFL deal, Disney ended the day in the red zone as the stock sold off about 3% on a tepid outlook and concerns regarding the pace of linear TV declines.
Where’s the Beef?
McDonald’s# served up better than expected revenue and earnings for the second quarter, reporting 5% revenue growth and 12% earnings growth. Global comparable sales (sales of stores open at least 13 months) rose 3.8%. The company attributed this to a compelling value, better marketing, and menu innovation. McDonald’s still faces challenges from continued weakness in lower-income consumer spending. However, customers boosted what they spent per visit, while positive check growth also came partly from higher prices. McDonald’s said cost pressures in some markets have become more challenging, particularly in Europe, but it stuck to its financial forecasts for the year, even with the impact of tariffs. The company is also readying the launch of its new adult-themed McDonaldland Meal, featuring collectible milkshake glasses with images of Mayor McCheese, Ronald McDonald, Grimace and the Hamburglar appearing. This is a nostalgic promotion, bringing back characters from 20 years ago.
McDonald’s said its U.S. same-store sales rose 2.5%, reversing a year-ago decline of 0.7%. About a quarter of its U.S. customers are enrolled in the company’s loyalty program, which apparently increases the frequency of visits. McDonald’s said it still expects to open about 2,200 restaurant locations around the world in 2025, including about a quarter of them in the U.S. and about half in China. McDonalds’ stock sizzled over 3% higher by yesterday’s closing bell.
The best defense is a good offense
Second quarter earnings season metrics continue to look good with the blended growth rate ending last week at 10.3%, well above the 4.9% expected. With just over two-thirds of the S&P 500 having now reported, 82% of companies have surpassed earnings expectations, better than the 77% one-year average. In aggregate, companies are reporting earnings that are 8% above expectations. Looking ahead, earnings are expected to increase 6% in Q3 and 7% in Q4. For all of 2025, earnings are expected to increase by about 9%. That might be worth a celebratory end zone dance if realized.
Sometimes the offense is on the field and sometimes the defense. In the first quarter, the best performing sectors were defensive: Energy, Consumer Staples and Healthcare, while Technology lagged badly. In the second quarter, Technology, Industrials and Communication Services dominated returns. For July 2025, Technology did the best, adding 5.2% while Health Care did the worst, falling 3.4% for the month. July’s total return would have been flat without the Magnificent 7 stocks included. Right now, large technology companies continue to move the ball down the field. In football, the score does not always reflect the intensity of the game, and progress may be measured in small increments. The same could be said of maintaining a disciplined approach to investing in these volatile markets.
Eagles quarterback Jalen Hurts pushes 27 today, and Wayne Knight (“Newman” of Seinfeld) turns 70.
Christopher Crooks, CFA®, CFP® 610-260-2219