Traders work on the floor of the New York Stock Exchange on April 26, 2023 in New York City.
Michael M. Santiago | Getty Images
This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Wall Street soars
Wall Street rose after producer prices came in softer than expected, raising hopes of a rate cut. The Dow Jones Industrial Average jumped more than 400 points, while the Nasdaq Composite jumped 2.4%, with tech megacaps — Nvidia, Microsoft and Apple — all closing higher. The S&P 500 rose 1.7% and is now just less than 5% off its July record high. Meanwhile, the yield on the 10-year Treasury slipped, while U.S. oil prices fell 2% on concerns over softening demand in China.
Starbucks ousts CEO
Starbucks surprised investors by replacing CEO Laxman Narasimhan with Chipotle CEO Brian Niccol, driving Starbucks’ stock up more than 24% while Chipotle fell as much as 10%. Narasimhan’s departure is effective immediately, with Niccol taking over on Sept. 9. Under Narasimhan’s tenure, Starbucks’ performance has struggled, marked by weak sales in the U.S. and China, its two largest markets. Starbucks has been under mounting pressure from activist investors. You can read more on why Wall Street believes Niccol is the person to revive Starbucks
Economic uncertainty
Home Depot exceeded quarterly expectations but lowered its full-year sales outlook, citing weak demand due to high interest rates and consumer uncertainty. The home improvement retailer forecast comparable sales decline of 3% to 4%, while total sales are projected to increase between 2.5% and 3.5%, primarily driven by its acquisition of SRS Distribution. CFO Richard McPhail noted a shift in consumer behavior, with customers delaying projects not only due to financing costs but also a growing sense of economic uncertainty.
AI-powered phones
Google revealed new AI features, including its Gemini assistant, that will be a part of Android devices, aiming to lead the AI race with Apple. While Google’s hardware business isn’t a major revenue driver, the AI enhancements could boost its Gemini AI subscription service. Additionally, Google launched its Pixel 9 series phones with upgraded cameras, brighter screens, the latest Tensor G4 processor, and 16GB of RAM for enhanced AI capabilities.
Cooling inflation
Wholesale inflation, as measured by the producer price index, rose less than expected in July, offering the Federal Reserve has more room for lowering interest rates. The PPI increased 0.1%, less than the 0.2% forecast, while core PPI — which excludes volatile food and energy components — remained flat. The latest inflation data strengthens the market’s expectations of an interest rate cut at the Fed’s September meeting. The current focus has shifted to the magnitude of the cut, with the futures market suggesting either a quarter or a half-percentage point reduction.
[PRO] Trading economic prints
Key inflation and retail sales data this week could spark significant market movements as investors assess the Fed’s interest rate policy amid concerns about economic growth and a stock market sell-off. Here’s JPMorgan’s guide to trading them.
The bottom line
You may think your last work appraisal was harsh, but spare a thought for the CEOs of publicly traded companies. The market’s reaction can be far more scathing. Starbucks has replaced CEO Laxman Narasimhan with Chipotle’s top boss, Brian Niccol, sending the coffee chain’s shares surging 24.5%. Shares had dropped 21% as of Monday since Narasimhan was appointed in March 2023.
Mellody Hobson, who recently stepped down as Starbucks’ chair, revealed on CNBC’s “Squawk Box” that the board had been considering replacing Narasimhan — who lacked restaurant experience — for several months. In contrast, Niccol has been Chipotle’s CEO since 2018, during which time its stock has skyrocketed by 773%.
While some on Wall Street were quick to upgrade their outlook on Starbucks, David Palmer, senior managing director at Evercore ISI, believes Niccol is “the guy” to turnaround the coffee chain but for now is maintaining his target price at $80.
“What makes Starbucks special is that human connection, that premium brand positioning. The baristas have to be energised, clearly they’ve had some union problems, clearly they’ve had a lot of new products that haven’t worked,” Palmer told CNBC “Squawk on the Street.” “They need to rediscover what the core is, solve their operational problems in such a way that reengages baristas and the consumer. So, they have a lot of heavy lifting ahead.”
The stock ended the session at $95.90, 11% below its high for the year. Meanwhile, Wall Street rose as the first of two inflation reports bolstered the likelihood of the Fed cutting rates in September.
On Tuesday, Home Depot warned sales could weaken in the second half of the year.
Chief Financial Officer Richard McPhail told CNBC, “Customers aren’t just deferring because of higher financing costs. They’re deferring because of a sense of greater uncertainty in the economy.”
Sarat Sethi, portfolio manager at Douglas C. Lane & Associates, told CNBC’s “Squawk Box,” “It’s just confirming what we’re seeing. We’re seeing the consumer slowing down.” He noted the worsening consumer pullback cited by McDonald’s and Starbucks in their results.
“It’s confirming what the Fed needs to do, which is basically start cutting rates,” Sethi said. “The big question is the Fed going to be cutting rates for the right reason, and hopefully it’s more because inflation is coming down, not because our economy really needs more.”
There’ll be more retail data to digest on Thursday, along with earnings from Walmart but before the bell today, there’s more inflation data. This is what is expected.
— CNBC’s Sarah Min, Amelia Lucas, Brian Evans, Samantha Subin, Jennifer Elias, Jeff Cox and Spencer Kimball contributed to this report.