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Starbucks vs. the Stock Market: A Fascinating Connection

A fascinating connection between the number of coffee shops and stock market trends

by Bob Stokes
Updated: June 22, 2018

It usually takes time to see if a financial, economic or social forecast works out.  After all, we're talking about a broad future trend.

But, let me share with you a forecast that's been an exception to that rule. It's from our April 2018 Elliott Wave Theorist:

The number of coffee shops in the United States will decline substantially.

Now, just two months later, look at this June 20 headline (CBS Moneywatch):

Starbucks to close 150 stores as sales growth cools

In EWI's view, this announcement is just a hint of what's ahead.

You might ask, "What does this have to do with the stock market?" Fair question.

You see, the April Elliott Wave Theorist made that forecast because the dramatic rise in the number of coffee shops that started about 25 years ago is a bull market trend. Starbucks' initial period of expansion began around the same time as the 1990s bull market.

Therefore, it naturally follows that a bear market should bring a dramatic drop in the number of coffee shops.

Indeed, here's a Jan. 28, 2009 New York Times headline, which published more than a year after the start of the 2007-2009 bear market:

Starbucks to Close 300 Stores and Open Fewer New Ones

As you might imagine, the number of coffee shops is by no means the sole stock market indicator. And you could argue that, with Starbucks shops often literally across the street from each other, it may be time to curb the chain’s expansion a bit. But the stock market, as our readers know, is an indicator of social mood – and as such, the timing of Starbucks’ decision is fitting, from a socionomic perspective.

After all, it comes four months after the swift 10% sell-off in stocks back in February, the largest market sell off in nine years.

Indeed, speaking of "caffeine," it appears that the stock market could use some.

Here's what our June 15 U.S. Short Term Update said about the DJIA rally that started in April and stretched up until a week or two ago:

The Short Term Update has discussed the tepid internal strength of the advance …

Just two trading later, on June 19, the DJIA tumbled 287 points. On June 21, investors were handed another triple-digit drop, which was the DJIA's eighth down day in a row.

This is an important juncture to learn why our U.S. Short Term Update editor described the market's recent rebound as occurring on "tepid internal strength."

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