August 13th Market Overview

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Happy Tuesday everyone.

Fantastic bounce across the board. Consumer discretionary sector being pushed up by Starbucks news and with VIX below $20 the market is showing some stability after last weeks insanity.

Lets dig in…

Executive Summary

• Dow surges over 350 points as tame inflation data fuels market rally.

• Starbucks stock soars 21% on the surprise appointment of Chipotle’s CEO, Brian Niccol.

• Home Depot adjusts sales outlook, highlighting cautious consumer sentiment.

• July PPI data beats expectations, potentially influencing the Federal Reserve’s rate decision.

Market Overview

We’re seeing a significant rebound in U.S. stocks today. The Dow climbed 394 points (+1%), the Nasdaq pushed 2.3%, and the S&P 500 added 1.5%. The S&P 500 is now within 5% of its record high from July, boosting investor confidence. Market volatility has eased, with the VIX hovering below 20, reflecting a more stable market environment.

Key Market Drivers

• Inflation Data: July’s PPI rose just 0.1%, below the expected 0.2%, which has positively impacted market sentiment and fueled investor confidence.

• Rate Cut Expectations: Cooler inflation data has increased speculation about potential Federal Reserve rate cuts, driving fresh optimism in the markets.

• Corporate Leadership Shake-up: The announcement of Brian Niccol as Starbucks’ new CEO has sparked significant market movement, highlighting the impact of executive leadership on stock performance.

Stock Spotlight

• Starbucks (SBUX): Shares skyrocketed 21% on the news of Brian Niccol becoming CEO, emphasizing faith in his leadership following his successful tenure at Chipotle.

• Chipotle (CMG): Stock dropped around 4% following Niccol’s departure, indicating investor concern over future leadership.

• Home Depot (HD): Gained 1.16% despite lowering its full-year sales forecast, underscoring the cautious outlook in the consumer sector.

• Dell Technologies (DELL): Rose 6% after Barclays upgraded the stock to equal weight, reflecting renewed interest in its potential.

• On Holding (ONON): Initially surged on strong quarterly results but ended up with a modest increase of over 2%, showcasing the volatility in market reactions.

Other Notable Company News

• Micron (MU): Citi warned of potential inventory issues, raising concerns about future performance amid a changing tech landscape.

• Warner Bros Discovery (WBD): Bernstein expressed pessimism due to missed metrics, a challenge for the entertainment giant.

• Target (TGT): Stifel lowered the price target to $147, citing ongoing consumer weakness and the potential impacts of rate adjustments.

Sector Watch

Bond Market

Bond yields dropping following the cooler PPI data, supporting the case for potential Federal Reserve rate cuts. The decline in yields is viewed positively by equity markets, which tend to prosper in a lower interest rate environment.

Policy Watch

The Fed’s 2% inflation target is under scrutiny, with some experts, including Stifel’s Barry Bannister, deeming it unrealistic. Recent commentary suggests the market is not fully pricing in a recession despite signs of economic slowdown. Volatility is expected to remain elevated until the presidential election, according to Nomura. However, recent hedge fund activity has somewhat reduced downside risks. All eyes are on tomorrow’s CPI report, which could further shape expectations regarding Fed policy and influence market direction.

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- JB

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Note: This newsletter is intended for informational purposes only.