☔️ CPI Just Dropped…

+ Mars Acquiring Kellanova + Cisco Earnings

Good afternoon! Norway’s sovereign wealth fund, the world’s largest, just scored a whopping $138 billion in profits for the first half of 2024, thanks to the unstoppable rise of AI-driven tech stocks. With a 12.5% return on its equity investments, this $1.7 trillion behemoth is raking in more profits than Nancy Pelosi. The fund’s success comes as demand for AI solutions pushes tech stocks into the stratosphere, making Norway’s massive oil-and-gas-backed portfolio look like a crystal ball for the future of finance.

But it’s not all smooth sailing ahead. While the fund is basking in the glow of its tech-driven gains, CEO Nicolai Tangen is flashing a caution sign, warning of potential turbulence due to global uncertainties and shifting geopolitics. So while the first half of 2024 was a win, the second half could see a few bumps on the road.

MARKETS

*Stock data as of market close*

  • The Dow added 0.61% on Wednesday, cruising higher after some solid inflation data rolled in. The S&P 500 also kept the momentum going, notching its fifth straight win with a 0.38% bump, while the Nasdaq barely squeezed out a 0.03% gain.

  • Inflation cooled a bit, with consumer prices rising just 2.9% year-over-year—the lowest since March 2021—keeping the Fed on track for a potential rate cut in September. While the market started the day mixed, the late-session rally showed that Wall Street is cautiously optimistic. But with more economic data on deck, traders are still keeping one eye on the exit.

STOCKS
Winners & Losers

What’s up 📈

  • Victoria’s Secret ($VSCO) jumped 16.41% after the intimate apparel company named Hillary Super as chief executive, effective Sept. 9, and also raised its second-quarter adjusted earnings estimate.

  • Flutter ($FLUT) climbed 8.09% as revenue and net income rose year-over-year, prompting the company to lift its outlook for full-year revenue. Flutter is the parent company of FanDuel.

  • Kellanova ($K) surged 7.76% after Mars announced a deal to acquire the Pringles maker.

  • The Progressive Corporation ($PGR) gained 5.4% following the release of strong financial results up until the end of July 2024.

  • Allstate ($ALL) rose 5.23% after announcing a $2 billion cash deal to sell its employer voluntary-benefits business to StanCorp Financial.

  • Ferrari ($RACE) increased 4.88% as the stock hit record highs, driven by rising profit estimates, stock buybacks, and EV ambitions.

  • Charles Schwab ($SCHW) advanced 4.59% after reporting strong customer and asset growth in July, including $29 billion in core net new assets and 327,000 new brokerage accounts.

What’s down 📉

  • Ouster ($OUST) plummeted 27.67% as soft Q2 sales and downbeat guidance continued to drag the stock lower.

  • Mobileye ($MBLY) fell 6.2% after insider purchases by the CEO failed to boost investor confidence in the company’s performance.

  • Etsy ($ETSY) slid 4.74% amid activist pressure from Elliot Management.

  • Tesla ($TSLA) dropped 3.10% as slower inflation and the potential for lower interest rates could lead to cheaper car prices.

ECONOMY
CPI Just Dropped…

Inflation? More like deflation. The July Consumer Price Index (CPI) report just hit, and it’s giving us the kind of cautiously optimistic vibes you get when something unexpectedly goes right—like a pleasant surprise, but with a side of skepticism, because you're waiting to see if it’s too good to be true.

What You Need to Know:

  • Core CPI (AKA inflation minus the wildcards like food and energy) rose 3.2% year-over-year—its chillest pace since early 2021. On a monthly basis, it edged up 0.2%, barely more than a rounding error compared to June’s numbers.

  • Overall inflation bumped up 0.2% for the month and 2.9% from last year—a number we haven’t seen since early 2021. Nearly 90% of that monthly increase is thanks to shelter costs, which are doing their best to keep inflation from becoming too boring.

  • As for the Fed? They’re still eyeing rate cuts like a kid in a candy store. Futures traders are betting on a full percentage point of cuts by year’s end, but a hefty 50-basis-point chop in September is looking less likely.

The Housing Dilemma: Shelter costs are like that one guest who won’t leave the party. They were responsible for nearly all of July’s inflation bump, with the shelter index rising 0.4% after June’s 0.2% uptick. Meanwhile, car insurance costs soared 1.2%, and food prices edged up 0.2%. But hey, energy prices, new cars, clothes, and airfares all decided to give your wallet a break.

Market Vibes: Wall Street barely flinched. Stock futures nudged upward, and Treasury yields inched higher. The yield curve flattened, suggesting the markets are still waiting to see if the Fed will play the role of Santa or the Grinch come September.

So, what’s next? Rate cuts are almost a done deal, but whether it’s a gentle 25-basis-point trim or a bold 50-pointer is still up in the air. Pro tip: If you’ve got cash parked in high-yield accounts, you might want to lock in those rates now before they start shrinking faster than summer vacation.

NEWS
Market Movements

FOOD
Mars To Acquire Kellanova for $36 Billion in Snack Power Play

A Bold Bite

Mars Inc., the king of candy with a portfolio that includes M&M’s and Snickers, is making its biggest move in nearly a decade by acquiring Kellanova, the snack behemoth behind Pringles and Cheez-Its, for a jaw-dropping $36 billion. This blockbuster deal prices Kellanova at $83.50 per share—a hefty 33% premium over its August 2nd stock price. Mars is clearly betting big on the future of snacking, and it’s not just about satisfying cravings. With cocoa prices skyrocketing, Mars is looking to diversify away from its chocolate-heavy lineup.

Snacking Strategy: Go Big or Go Home

Kellanova, which split from Kellogg ($K) last year, has been on a winning streak, outperforming rivals and enjoying a 33% surge in stock value this year alone. With its impressive portfolio of globally recognized brands and a strong presence in emerging markets, Kellanova is the perfect snack-sized addition to Mars’ empire. Mars plans to double its snacking business over the next decade, leveraging Kellanova’s strength in regions like Africa while boosting its own presence in China. And don't worry, your favorite snacks like Cheez-Its and Pringles aren’t going anywhere—Mars has no plans to shake up the lineup.

The Regulatory Maze

Now, about those potential roadblocks: While a deal of this magnitude usually sets off antitrust alarm bells, both Mars and Kellanova are confident they’ll navigate the regulatory landscape with ease. The two companies have minimal overlap, which should help them avoid any major pushback. But if things don’t go as planned, Mars could be on the hook for a $1.25 billion breakup fee—a bitter pill to swallow. Still, analysts believe the deal will likely go through, setting the stage for more mergers and acquisitions in the snack industry as companies scramble to keep up with changing consumer tastes and the push for global expansion.

This acquisition isn’t just about adding a few more snacks to Mars’ pantry—it’s about reshaping the future of the industry and staking a claim in the global market. As the saying goes, if you can’t beat ‘em, buy ‘em.

EARNINGS
Cisco Slashes 7% of Workforce, but Earnings Surprise on the Upside

By the Numbers:

Here’s the lowdown on Cisco’s latest quarterly report and restructuring moves:

  • Layoffs: 7% of global staff (around 6,000 jobs)

  • Earnings: $0.87 per share (beating $0.85 expected)

  • Revenue: $13.64 billion (vs. $13.54 billion predicted)

  • Networking Revenue: Down 28% to $6.8 billion

  • Security Revenue: Up 81% to $1.8 billion

  • Splunk’s Impact: $960 million in revenue

  • Net Income: Down 45% to $2.2 billion

  • Stock: Down 10% YTD, but up 5.5% after hours

The Layoff Shuffle

Cisco ($CSCO) is tightening its belt again, cutting 7% of its global workforce—about 6,000 jobs—in a bid to save $1 billion. This is the second major round of layoffs for the tech giant this year, following a 5% reduction back in February. So why the cuts? Cisco says it’s all about redirecting resources to “key growth opportunities” and making the business more efficient. In plain English, it’s time to trim the fat and focus on what’s actually working as the company navigates some choppy waters.

Revenue Down, but Not Out

Despite reporting its third straight quarter of declining revenue, Cisco managed to beat Wall Street’s expectations. The company posted earnings of $0.87 per share, edging out the expected $0.85, while revenue came in slightly above forecasts at $13.64 billion. However, it’s not all sunshine and rainbows—Cisco’s bread-and-butter networking business is taking a hit, with revenue from switches and routers plummeting 28%. The ongoing shift of large enterprises to cloud services is eroding demand for Cisco’s traditional hardware, leaving the company scrambling to adapt.

Splunk to the Rescue

Here’s where things get interesting. Cisco’s $28 billion acquisition of Splunk, a major player in data analytics and cybersecurity, is starting to pay off. The security segment saw an 81% surge in revenue, thanks in large part to Splunk, which contributed $960 million this quarter alone. As Cisco’s hardware sales continue to struggle, the company’s future seems increasingly tied to software and security. And the market seems to agree—Cisco’s stock popped 5.5% in after-hours trading, even though it’s still down 10% for the year.

Looking ahead, Cisco’s revenue slide isn’t expected to turn around overnight, but the company’s pivot toward more stable, subscription-based revenue through software and security could be its saving grace. For now, it’s all about weathering the storm and hoping that Splunk’s boost is enough to keep the ship afloat.

Calendar
On The Horizon

Tomorrow

This week still has a few reports left on the docket, but after today’s big CPI drop, the rest seem a bit underwhelming.

One key metric to keep an eye on is US retail sales, which are expected to tick up by about 0.3% for July. Retail sales have held up surprisingly well despite high inflation, helping the US dodge a recession so far. But if the job market is showing more cracks than expected, consumer spending could take a hit—and this report might reflect that shift.

We’ll also get updates from the Empire State Manufacturing Survey, the Philly Fed Manufacturing Business Outlook Survey, and the Import Price Index (think of it as the quirky cousin of CPI and PPI).

Before Market Open:

  • Walmart ($WMT), the nation’s retail giant, just keeps getting bigger. The company’s making serious moves in e-commerce and is planning to integrate AI across its supply chain. Add to that steady growth at Sam’s Club and solid margins despite inflation, and it’s easy to see why 27 of 30 Wall Street analysts have Walmart as a buy. The consensus: $0.64 EPS and $168.57 billion in revenue.

  • Alibaba ($BABA), often dubbed China’s Amazon, hasn’t seen much stock movement this year. Investors are eager to hear how the company plans to navigate China’s ongoing economic slowdown and explore growth opportunities abroad. If Alibaba delivers the right message, its current low valuation could set the stage for a significant rally. The consensus: $2.11 EPS and $34.46 billion in revenue.