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☕️ Starbucks Taps Chipotle CEO

+ Wednesday's CPI + Home Depot Earnings

Good afternoon! Colin Huang, the brains behind Pinduoduo Holdings ($PDD) and the owner of Temu, just snagged the title of China’s richest person, dethroning bottled-water tycoon Zhong Shanshan. Huang’s rise to the top wasn’t a smooth ride—his net worth took a nosedive after the initial pandemic boom. But thanks to China’s evolving shopping habits and Temu’s explosive growth in the U.S., Huang is back on top with a cool $48.6 billion.

Huang’s success story is a mix of resilience and timing. After stepping back from the spotlight during China’s tech crackdown, his company PDD Holdings ($PDD) made a major comeback, largely driven by Temu’s bargain-basement pricing strategy that has Americans hooked. While Huang’s fortune continues to grow, his relentless push for growth has drawn scrutiny—from protests by suppliers to whispers about grueling work conditions at PDD. But for now, Huang’s ascent is a testament to the power of cheap deals and smart pivots in the world of e-commerce.

MARKETS

  • The stock market basked in green on Tuesday, with indexes climbing higher as investors welcomed cooler-than-expected inflation data. The Producer Price Index (PPI) for July showed a modest 0.1% increase, offering some hope that inflation is cooling off. This comes just in time for Wednesday's much-anticipated Consumer Price Index (CPI) and Thursday's retail sales data, both of which are crucial for gauging the economy's health.

  • Tech stocks led the rally, with the Nasdaq surging 2.43%, marking its best five-day streak since November. The S&P 500 wasn't far behind, adding 1.68%, while the Dow Jones Industrial Average inched up by 1.04%.

  • The milder PPI reading bolstered expectations that the Federal Reserve might opt for a more significant rate cut next month, potentially a half-point instead of a quarter. Investors are now looking ahead to the upcoming economic reports, which could further stabilize the market or fuel more optimism

STOCKS
Winners & Losers

What’s up 📈

  • BuzzFeed ($BZFD) surged 25.89% after the company narrowed its second-quarter loss and announced that its new rollouts are beginning to pay off.

  • Starbucks ($SBUX) spiked 24.5% after announcing that CEO Laxman Narasimhan is stepping down immediately, with Chipotle CEO Brian Niccol stepping in as his replacement.

  • Sea Limited ($SE) jumped 11.85% after reporting second-quarter earnings that beat revenue and adjusted EBITDA expectations, coupled with positive guidance for its Shopee eCommerce business.

  • Carvana ($CVNA) rose 9.75% on broader market optimism driven by a softer-than-expected Producer Price Index (PPI) report.

  • Rumble ($RUM) gained 5.39% following a better-than-expected second-quarter earnings report.

What’s down 📉

  • Tencent Music Entertainment ($TME) plunged 15.31% after reporting earnings that fell well below Wall Street’s estimates, with revenue only narrowly beating analyst predictions.

  • Chipotle Mexican Grill ($CMG) dropped 7.5% after announcing that CEO Brian Niccol is leaving to become the new CEO of Starbucks.

  • Illumina ($ILMN) declined 3.87% despite delivering better-than-expected earnings and revenue in Q2 2024, as the company lowered its 2024 revenue guidance, which disappointed investors.

  • Trump Media & Technology Group ($DJT) slid 3.62% following former President Trump's interview with Elon Musk on X.

RESTAURANTS
Starbucks Taps Chipotle CEO to Brew Up a Turnaround

Starbucks ($SBUX) just swapped out its CEO like a barista switching out coffee beans. Laxman Narasimhan is out, and Brian Niccol, the former Chipotle ($CMG) chief, is in. Investors responded like they’d just had a double shot of espresso—sending Starbucks stock up a whopping 24.5%.

From Burrito Bowls to Coffee Cups

Niccol is no stranger to turning things around. At Chipotle, he led a massive comeback after the food-safety scandals, transforming the burrito chain into a digital ordering powerhouse and boosting its stock by about 800%. Now, he’s trading guac for frappuccinos, with the challenge of revamping Starbucks’ sluggish sales and clunky operations.

Brewing Up Big Changes

Starbucks has been struggling with long wait times and fewer customers, especially as inflation bites into coffee budgets. Narasimhan tried to caffeinate the company’s sales with higher-priced drinks and digital orders, but it backfired, leading to his abrupt exit. Enter Niccol, who’s expected to bring some of his Chipotle magic—think streamlined operations and a revamped digital experience that makes ordering and picking up your coffee as effortless as grabbing lunch on the go.

But it’s not all smooth sipping ahead. Niccol’s got to juggle the demands of activist investor Elliott Management and Starbucks’ not-so-retired founder, Howard Schultz, who’s still lingering like the smell of burnt coffee beans. His mission? To deliver on some more realistic goals, unlike the lofty ones Schultz set, which sent Narasimhan packing.

Chipotle’s Loss, Starbucks’ Gain

Meanwhile, Chipotle’s stock took a hit, dropping 7.5% on fears that Niccol’s departure could shake up the burrito biz. But analysts are confident that the team Niccol built will keep Chipotle rolling.

So, should you bet on Starbucks? Wall Street seems to think so, with analysts upgrading their ratings faster than a barista pumps out pumpkin spice lattes. Niccol’s got the skills to grind out a Starbucks revival, but he’s got a tall order ahead. Stay tuned—it’s going to be a wild brew.

NEWS
Market Movements

ECONOMY
CPI: The Fed’s Next Move Hangs in the Balance

Tomorrow’s CPI report is the main event everyone’s been waiting for—think of it as the Super Bowl for inflation watchers. With today’s Producer Price Index (PPI) coming in cooler than expected, all eyes are now on the Consumer Price Index (CPI) to see if inflation continues to ease up. Economists are expecting a 0.2% bump in both the headline and core CPI readings, with year-over-year inflation holding steady at 3%. If those numbers hit, the Federal Reserve might finally be able to shift its focus from fighting inflation to tackling other economic challenges—like that pesky slowing labor market.

What’s at Stake: A Green Light or a Roadblock?

Here’s why it matters: If CPI plays nice and comes in as predicted, it could be the green light for the Fed to start cutting interest rates, something Wall Street has been anxiously waiting for. The Fed has been in inflation-fighting mode for what feels like forever, but with the unemployment rate creeping up, there’s growing pressure for them to pivot. Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors, put it simply: “Inflation is almost a nonissue at this point. There’s this broad expectation that the worst is easily behind us.”

But don’t pop the champagne just yet. If CPI surprises us by coming in hotter than expected, it could throw a wrench in the works and reignite those dreaded stagflation fears—a combo of rising prices and slowing economic growth that’s basically the financial equivalent of a horror movie. While some experts think stagflation fears are overblown, a surprise in the CPI could still send markets into a tailspin and force the Fed to rethink its next move.

The Fed’s Next Move: Rate Cuts or More Tightening?

So, what’s at stake? A lot. Markets are already pricing in a rate cut at the Fed’s September meeting, but tomorrow’s CPI report could either seal the deal or flip the script. If inflation stays on the down-low, the Fed might finally be able to take its foot off the gas. But if prices start heating up again, well, we might be in for a bumpy ride.

EARNINGS
Home Depot’s Reality Check: Deferral Mode Activated

🛠️ By the Numbers:

  • Comparable Sales: Down 3.3% (7th consecutive quarterly decline)

  • Revenue: $43.18 billion (vs. $43.06 billion expected)

  • Earnings per Share: $4.67 (vs. $4.52 expected)

  • Outlook: Sales now expected to drop 3-4% this year (previously forecasted 1% decline)

Home Depot ($HD) is feeling the squeeze as consumers tighten their tool belts. Despite beating Wall Street’s expectations for earnings and revenue, the home improvement titan had to cut its full-year sales forecast, blaming a “deferral mindset” among customers who are holding off on major projects until interest rates stop giving them heartburn. It turns out, people aren’t as eager to remodel their kitchens when borrowing costs are sky-high.

Seven Quarters of Slumps—And Counting

Let’s talk numbers. Home Depot’s comparable sales have dipped for the seventh straight quarter, with a 3.3% decline this time around. Blame it on consumers who are spending less and waiting more. While pandemic lockdowns had everyone rushing to Home Depot to spruce up their spaces, today’s economic uncertainty has them second-guessing that new deck or bathroom redo. Instead, they’re opting for smaller, wallet-friendly projects—like painting a wall instead of tearing it down.

Betting Big on the Long Game

But it’s not all doom and gloom. Home Depot is playing the long game, investing in its professional customer base and digital capabilities to weather the storm. The recent $18 billion acquisition of SRS Distribution, a supplier to professional contractors, is a big move in that direction. These pros are less likely to delay projects, making them a more reliable revenue stream. Plus, with investments in supply chain and digital infrastructure, Home Depot is setting itself up for future growth once the economy gets its groove back.

So, while the immediate future might look a little shaky, Home Depot is banking on a rebound—whenever that might be. In the meantime, they’ll keep hammering away at those long-term strategies.

Calendar
On The Horizon

Tomorrow

Tomorrow, the spotlight shifts to the Consumer Price Index (CPI), the big brother of today’s Producer Price Index (PPI) report.

CPI tracks the price changes of goods and services that hit your wallet directly. It’s a crucial gauge for the Federal Reserve as they monitor how their battle against inflation is shaping up. In June 2024, CPI climbed 3% year-over-year, following a 3.3% rise in May. For July, economists are betting on another 3% annual hike with a modest 0.2% increase from June.

Given the market’s volatility, a higher-than-expected CPI could trigger a wave of selling, while a lower number might spark investor enthusiasm, inching us closer to the Fed dialing back interest rates.

After Market Close:

  • Cisco ($CSCO) has been lagging behind its tech counterparts this year, missing out on the AI-driven rally that’s lifted many of its peers. The network infrastructure giant has faced challenges, including a round of layoffs and disappointing earnings last quarter, which haven't exactly inspired investor confidence. But don’t count them out just yet—Cisco still boasts a solid business model, has ramped up its cybersecurity game, and is now looking like an undervalued play. Wall Street is expecting $0.85 EPS and $13.54 billion in revenue for this quarter.