Breakfast News: CAVA Sinks On Soft Sales

Breakfast News: CAVA Sinks On Soft Sales

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1. CAVA Plummets as Growth Momentum Slows

Rule Breakers recommendation CAVA Group (CAVA 3.40%) fell over 22% after the market closed following earnings where same-restaurant sales growth missed expectations and the full-year outlook was lowered.

• "We're operating in a fluid macroeconomic environment, and it's one that sort of creates a fog for consumers where things are changing constantly": CFO Tricia Tolivar mentioned the broader industry was feeling the same pressures. There was some optimism, though, with the company raising its full-year goal for net new restaurant openings to 68-70.
• The stock has never before seen a double-digit intraday decline: Should CAVA close today where it currently trades in the pre-market, it would be the largest drop on record. The stock is beating the S&P 500 by 89% since the Rule Breakers rec in 2023.

2. Stocks Soar on Rate-Cut Hopes

The S&P 500 and Nasdaq hit fresh record highs, with the VIX index (Wall Street's fear gauge) at the lowest level since December, following an inflation report that lifted expectations of an imminent Federal Reserve interest rate cut.

• "Markets will likely embrace these numbers because they should allow the Fed to focus on labor-market weakness": Ellen Zenter, chief economic strategist at Morgan Stanley (MS 2.37%), explained why the 2.7% July Consumer Price Index inflation print – which matched the June figure – helped to push stocks higher.
• September rate cut probability at 96.3%: According to the CME FedWatch tool, a 0.25% reduction at the next meeting is virtually a done deal, up from a 57.4% likelihood a month ago.

3. Bessent Dismisses China Funds, Pushes 0.5% Fed Cut

Treasury Secretary Scott Bessent rejected the idea of accepting Chinese investments as part of a trade pact between the two nations, while hinting a 0.5% interest rate cut should be considered by the Federal Reserve in September.

• "The real thing now to think about is should we get a 50 basis-point rate cut in September": Bessent said the latest inflation report showed economists have misread the impact of tariffs, with weaker jobs growth in recent months opening the door for interest rate cuts.
• "A lot of the buyout or the funds from the buyout are going to go to critical industries that we need to reshore": Given the security concerns about investing money in sensitive sectors, the U.S. government doesn't want to include Chinese funds as part of a deal, which narrows the options for the two sides to make an agreement.

4. Next Up: Cisco & Ibotta Report

Cisco Systems (CSCO 1.04%) will report quarterly earnings after the market closes, with a focus on AI infrastructure sales after hitting $600 billion worth of revenue from this area last quarter.

• Beating the S&P 500 by 31% since May 2024 Hidden Gems recommendation: After management previously increased the guidance for earnings, investors will be keen to see if any delayed impact of tariffs or trade wars becomes evident today.
• Only missed revenue estimates once over the last two years: Ibotta (IBTA 3.70%) also releases results following the closing bell, with growth in active redeemers and traction on new partnerships being closely watched.

5. Your Take

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