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    MARKET EDGES

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McDonald’s and Costco are both flashing negative divergences today, trading down in an up tape. Why? Well, mostly because their margins are under assault by lagging effects of inflation. The stock market is trading up because reported inflation for July will show a sequential downtick from the June highs. These stocks are down because their suppliers are reacting to trailing data.

On their conference call right now Costco is saying that price increases they had assumed they would get from suppliers are larger and more frequent. The upshot is that in the near term, COST will have a much larger LIFO adjustment from inflation.

It’s important to understand that Macro wags the tail of many CFO’s. These guys are rarely early, and mostly late.

COST and MCD are trading down -10% and -2%, respectively.
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