Internal | August 14th, 2024

GOOD MORNING

Here's everything you need to know today: Stocks decided to flip the script on Tuesday, with the Dow climbing 1.04%, the Nasdaq jumping 2.43%, and the S&P 500 adding 1.68%. The S&P is now just a stone’s throw from its July record, proving that just when you think this market will finally just be chill, it pulls a Houdini, and Jay Powell somewhere in D.C. popping antacids like Tic Tacs.

The catalyst? A PPI print that came in cooler than expected, ticking up just 0.1% for July instead of the predicted 0.2%. That tiny miss was enough to send Wall Street into its happy place, at least until Wednesday’s CPI drops, and investors can decide how many rate cuts they’re getting. 

It does look like this rally has legs, at least until Powell throws another wrench in the works. But for now, Wall Street’s doing what it does best: pretending to ignore the Fed and keeping the party going.

Let’s dive into more detail below.

BREAKING NEWS
Well, that was quick… Paul Singer quick, to be more precise. On Tuesday, Starbucks announced it’s dumping CEO Laxman Narasimhan, and bringing in Chipotle’s Brian Niccol to clean up what has become a corporate mess. And let’s be real. Singer’s activist hedge fund Elliott Management probably had more than a little to do with it.

Not that it’s necessarily a bad thing. Starbucks’ stock perked up 15% in premarket trading on the news, while Chipotle’s shares spilled 8%. But the abrupt leadership change is as subtle as a triple shot of espresso, signaling that outside forces are causing some caffeinated big moves at the coffee giant’s Seattle headquarters.

WHAT HAPPENED
The 57-year-old Narasimhan, who’s barely had time to warm the CEO seat he took over in March 2023, is out. Effective immediately. Starbucks CFO Rachel Ruggeri will step in as interim CEO until Niccol officially grabs the reins on September 9. Despite being the handpicked successor of Starbucks founder Howard Schultz, Narasimhan’s brief tenure as Starbucks chief barista was… let’s go with “shaky.” Shares tanked 21% on his watch, as the company floundered with weak sales and traffic in its U.S. and (the all-important) China markets.

But why so fast and why right now? We doubt any of us should be looking much further than Elliott Management to answer that question. Elliott has been aggressively pushing for a board seat at Starbucks and reports on Monday indicated it was close to getting what it want. The hedge fund is infamous for forcing companies to make big changes, and they don’t usually settle for half measures(Google “Argentine naval vessel in African port,” and thank us later). Giving Singer and his team even more leverage, Elliott’s push comes at a time when Starbucks was already struggling pretty badly.

And if having Elliott peering through the window and eyeing the furniture wasn’t enough to shove Narasimhan out the door, Starbucks’ board had another problem brewing: a fresh activist threat from Starboard Value, which recently snapped up a stake in the company, a move that had its own implicit warning. The board clearly decided that Niccol, with his stellar track record at Chipotle, was the guy to steer Starbucks back on course, while keeping Elliott’s bloodlust sated in the meantime.

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BREAKING NEWS
On Monday, while most people were easing into their workweek, former President Donald Trump and Elon Musk hosted a Spaces event on the platform X.

Did it have a political angle? Absolutely. It’s hard to imagine two of the most polarizing figures in media taking time out of their Monday to not throw a few jabs at Trump's presidential opponent Kamala Harris. They threw plenty and also a bunch at Joe Biden because The Donald was more prepared for that tussle.

Was there anything of substance? Topics like climate change, inflation, and the 2020 election were on the table, but live fact-checkers flagged at least 20 false or misleading claims. One notable outcome: Trump was reinstated on the X platform after his January 8, 2021 ban—an event that had important implications for one of Trump's most extensive stock holdings, Trump Media & Technology Group (DJT), a direct competitor of X.

WHAT HAPPENED
This wouldn’t be the first time former President Donald Trump sacrificed a business for a moment in the spotlight. Between 1991 and 2009, Trump-linked businesses filed for bankruptcy six times, including Trump Taj Mahal, Trump Plaza Hotel, and Trump Entertainment Resorts, mostly due to overwhelming debt from aggressive expansion funded by high-interest loans.

Trump’s history of failed ventures extends beyond these bankruptcies, with flops like Trump Airlines, Trump University, Trump Vodka, and Trump Steaks. So, it wasn’t a huge surprise when DJT shares tanked after Trump and Elon Musk hosted a Spaces event on Monday. After all, DJT is the parent company of Truth Social, Trump's post-insurrection X competitor that draws much of its value from being the platform that had exclusivity on Trump's thoughts.

By Tuesday, the stock had dropped to $24, its lowest since April, down nearly 44% over the last six months.

Some wondered if something said during the event might have caused the company's stock to drop. Despite initial technical difficulties, the discussion, which drew over 1 million listeners, covered various topics, including Trump's recent assassination attempt, immigration, and the economy. There was some focus on policy issues, particularly criticizing the current administration's handling of inflation. While avoiding significant controversial statements, some felt Musk attempted to influence Trump's stance on specific policies, particularly regarding climate change and immigration.

The pair also angered the United Auto Workers union, which filed federal labor charges against Trump and Musk for threatening to intimidate workers who went on strike.

"I look at what you do; you walk in and just say, 'You want to quit?' They go on strike—I won't mention the company's name—but they go on strike, and you say, 'That's okay, you're all gone. You're all gone. Every one of you is gone," Trump said.

Musk could be heard laughing and replying, "Yeah."

Cool.

The big question now is, is Donald Trump just going to let Truth Social die so he can move back in with X? Because now that Trump is back on X with almost 90 million followers and Elon with the helm fanboying out, is there any reason Truth Social should even exist?

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BREAKING NEWS
Saudi Arabia has cemented itself as the world’s most extravagant sports fan, buying up leagues and stars like a tweaker on Prime Day. Now, The Kingdom has set its sights on soccer superstar Real Madrid’s Vinícius Júnior. The Saudi Pro League is reportedly dangling a jaw-dropping offer in front of the Brazilian sensation, hoping to add yet another glittering name to its growing list of soccer acquisitions.

But here’s the kicker: the potential cost of Viní Jr. shows the cost of attracting talent to the Saudi Pro League, and that begs the question of why the Saudis are bidding against themselves to create a top league in a place where big names don’t really want to play?

WHAT HAPPENED
Never shy about throwing money at a thing they want, the Saudis are reportedly trying to lure Viní Jr. away from Real Madrid with an eye-watering offer of a five-year, $350 million contract… yeah, that’s more than $1 billion. That would dwarf the $200 million per year deal Cristiano Ronaldo scored with Al Nassr, but keep in mind that Viní Jr. is just 23 years old, one of the hottest talents in the game, and prying him away from Europe’s elite isn’t going to come cheap.

The offer is the latest step in the Kingdom’s grand plan to pump life into the Saudi Pro League by signing big-name players who’ve made their mark in Europe. Remember, these are the same folks who have dropped a cool $1 billion on player transfers in the last 18 months, bringing in stars like Ronaldo, Neymar, and Karim Benzema. Ronaldo’s $200 million move to Al Nassr alone was a headline-grabber. Not long after, Benzema was wooed to Al Ittihad, and you can bet he didn’t come cheap either.

But it’s not just the players raking in the cash. Through its Public Investment Fund (PIF), the Saudi government is pouring billions into the entire ecosystem. Stadium renovations, broadcasting rights, you name it, they’re writing the checks. PIF’s sports spending is estimated to be around $2 billion annually; a hefty chunk of that is going into soccer. If he agrees, Viní Jr. would increase that spending by almost 18% all by himself.

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1. Home Depot Trims Guidance Amid Economic Concerns

Home Depot lowered its sales outlook for 2024, expecting a 3% to 4% drop in comparable store sales as consumers delay home improvement projects due to economic uncertainty and higher interest rates.

2. Ford Issues Urgent "Do Not Drive" Warning

Ford and Mazda have issued a "Do Not Drive" advisory for over 457,000 vehicles equipped with faulty Takata airbags, which have been linked to multiple fatalities. Owners are urged to get their vehicles repaired immediately.

3. Starbucks Replaces CEO with Chipotle's Brian Niccol

Starbucks has replaced its CEO Laxman Narasimhan with Brian Niccol, the former CEO of Chipotle. This leadership change comes amid declining sales and pressure from activist investors.

4. Nvidia Stock Continues to Surge Despite Concerns

Nvidia's stock has surged over 600% recently, with Wall Street remaining bullish despite concerns over its rapid growth. Analysts believe the company's dominance in AI technology justifies its high valuation.

5. Wholesale Inflation Slows, Raising Hopes for Fed Rate Cut

U.S. producer prices rose just 0.1% in July, below expectations, signaling a continued moderation in inflation. This has fueled speculation that the Federal Reserve may consider cutting interest rates later this year.

6. Chipotle Stock Drops After CEO Departure

Chipotle's stock tumbled over 10% following the announcement that CEO Brian Niccol is leaving to take over as CEO of Starbucks. Investors are concerned about the impact on Chipotle's ongoing digital transformation.

7. Paramount Shuts Down TV Studios Amid Cost Cuts

Paramount Global is shutting down its television studio operations as part of broader cost-cutting measures. The move will result in significant layoffs and the consolidation of projects under CBS Studios.

8. UAW Files Labor Charges Against Trump and Musk

The United Auto Workers union has filed federal labor charges against Donald Trump and Elon Musk, accusing them of threatening and intimidating workers during a recent interview on X. The charges could lead to significant legal challenges for both.

9. Steward Health Care to Sell Physician Network

Steward Health Care has agreed to sell its nationwide physician network to Rural Healthcare Group for $245 million in cash. The sale comes as Steward faces financial challenges, including a pending bankruptcy case.

10. Asian Markets React Cautiously Ahead of U.S. Inflation Data

Asian markets traded mixed as investors remained cautious ahead of key U.S. inflation data. Japan's Nikkei 225 rebounded sharply after a holiday, supported by a weaker yen boosting exporter stocks.

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