Key Takeaways

• Shares of the companies that dominate the shelves of America’s supermarkets rose on Wednesday after Mars said it would buy snack maker Kellanova for $36 billion.
• Kellanova was spun out of cereal maker Kellogg late last year amid a slew of corporate separations by some of America’s most storied companies.
• The Mars acquisition comes amid heightened regulatory scrutiny of grocery industry consolidation and a bout of inflation.

Shares of the companies that dominate the center aisles of America’s grocery stores got a boost on Wednesday from news of Mars Inc.’s $36 billion purchase of snack maker Kellanova (K). 

Kellanova was the best-performing stock in the S&P 500 in morning trading Wednesday, rising more than 7%. Among other gainers were Orville Redenbacher parent ConAgra Brands (CAG), cereal giant General Mills (GIS), and Campbell Soup (CPB). All three rose about 2% as the S&P 500 edged higher. The consumer-staples sector just outperformed the broader index.

Kellanova, the maker of Pop-Tarts and Pringles, was spun out of cereal maker Kellogg late last year. The remaining cereal business, which makes cereal aisle staples Rice Krispies and Frosted Flakes, was rebranded as WK Kellogg (KLG), shares of which were recently up more than 4%.

The spin-off came amid a rush of corporate separations from storied American companies, including GE, which began splitting itself into three separate companies in 2023 after years of struggling with cumbersome operations and a mountain of debt, and Johnson & Johnson (JNJ), which separated its consumer and pharmaceutical businesses the same year. 

Mars’s Kellanova acquisition comes as American consumers grapple with the aftermath of the country’s worst bout of inflation since the 1980s. Rising grocery prices, one of the few expenses people face daily, have been especially galling for wary consumers. 

The particular pain of rapidly rising grocery prices has complicated the merger and acquisition landscape for food and grocery companies. Supermarket chains Krogers (KR) and Albertsons (ACI) have been fighting with regulators for nearly two years to have their $24 billion merger approved. 

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Key Takeaways

• Retail sales likely rose 0.3% in July compared with the previous month, according to economists’ estimates ahead of the data’s release on Thursday.
• Auto sales are expected to have boosted July’s totals, while gasoline sales remain low as prices at the pump have been subdued.
• With debt levels high and the labor market weakening, economists expect spending will slow in the months ahead.

Economists expect that data to be released Thursday will show retail sales moved higher again in July. However, the post-pandemic spending spree may be close to an end.

Retail sales likely increased 0.3% in July versus the month before, according to economists surveyed by the Wall Street Journal and Dow Jones Newswires. That increase would follow better-than-expected figures the month before that showed consumers maintained their spending habits.

Strong retail sales have helped power the economy’s unexpected growth, as shoppers spent their way past projections that the U.S. would fall into a recession last year. And so far in 2024, retail sales have remained generally robust, though some economists think a slowdown is coming. 

Weaker Job Market Could Be A Drag on Spending

Weakness in the job market and the reliance of customers on credit has some economists asking if shoppers can sustain their spending habits.

“The lackluster pace of hiring in July, combined with other labor market indicators continuing to weaken, implies weaker income growth, which will eventually weigh on consumer spending,”  wrote Wells Fargo economists Tim Quinlan, Shannon Seery Grein and Jeremiah Kohl.

Auto Sales Will Likely Boost Totals, While Gas Receipts Expected to Shrink

Auto sales likely boosted the overall retail sales figure in July, after a cyberattack disrupted sales in the prior month. Meanwhile, gasoline sales are expected to have declined for a third consecutive month, as gas prices have remained subdued through most of the summer.

Another factor driving sales could be Amazon’s Prime Day, which happened in mid-July and often spurs competing sales. Adobe Analytics estimated that this year Americans spent more than $14.2 billion at online retailers during the two-day sale.

“Our forecast reflects a boost from another record Amazon Prime Day but sequentially slower credit card spending growth and a potential headwind from seasonality,” wrote Goldman Sachs analysts.

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Key Takeaways

• A 40% jump in sales for Singapore’s Shopee helped its parent Sea Limited post strong earnings.
• CEO Forrest Li said Shopee will become adjusted EBITDA-positive starting in the third quarter.
• Sea’s gaming and financial services businesses also saw double-digit growth.
• The company’s U.S.-traded shares jumped 12% on Tuesday, boosting its year-to-date gain to 85%.

Shares of Sea Limited (SE), the Singapore tech conglomerate that runs online shopping website Shopee, soared Tuesday after the company reported double-digit revenue growth in all its business segments for the second quarter.

Sea posted second-quarter adjusted earnings per share of $0.54, with revenue up 23.0% to $3.8 billion. Both exceeded estimates. 

The biggest driver of revenue growth was e-commerce sales that soared 40% to $2.5 billion. Shopee has a significant presence in South Asia, Taiwan and Latin America.

CEO Forrest Li said because of its strong first half results, Sea expects Shopee’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be positive starting in the third quarter. The company is also is raising its full-year outlook for gross merchandise value (GMV) to mid-20% growth.

Gaming, Financial Units Also Show Strong Growth

Sea also owns Garena, the gaming business behind popular game Free Fire and other digital entertainment such as publishing and e-sports. SeaMoney, is the company’s digital finance subsidiary offering mobile wallets and process payments in Southeast Asia and Brazil.

Digital financial revenue increased 21.4% to $519.3 million, while digital entertainment revenue climbed 21.1% to $536.8 million.

“Garena delivered a strong quarter, with more than 20% year-on-year growth in bookings, mainly contributed by Free Fire,” said Mr. Li, adding that the game had more than 100 million active players.

Sea Limited’s American Depositary Shares rose 11.9% to finish Tuesday’s session at $74.85. The stock has risen 85% since the beginning of the year.

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Key Takeaways

• Nvidia shares gained over 6% Tuesday as Goldman Sachs strategist Scott Rubner called it the “most important stock” of the year.
• Rubner suggested Nvidia’s earnings later in the month could herald a rally for the stock market, along with the Federal Reserve’s Jackson Hole Economic Symposium.
• The market could be poised for “super clean” positioning at the start of September for a Labor Day rally, he said.
• However, Rubner cautioned investors could face a “tricky” second half of September, before welcoming new highs in the fourth quarter of 2024.

Nvidia (NVDA) shares gained over 6% Tuesday as Goldman Sachs strategist Scott Rubner called it the “most important stock” of the year.

Rubner suggested the chipmaker’s earnings later in the month could herald a rally for the stock market, along with the Federal Reserve’s Jackson Hole Economic Symposium.

How Markets Could Be Poised for a Labor Day Rally

Nvidia reports earnings on Aug. 28, with the strategist expecting an earnings-fueled post-market move could potentially mark “the technical low for the largest index weights and AI darlings,” ahead of a September rally.

Rubner said the market could be poised for a Labor Day rally, leaving “a short term window to buy the dip as technical pressure eases.”

However, the Goldman strategist warned investors could face a “tricky” second half of September ahead of the U.S. presidential election before welcoming new highs in the fourth quarter.

Nvidia shares closed 6.5% higher at $116.14 Tuesday, helping make up for recent losses. With Tuesday’s gains, the stock has more than doubled in value since the start of the year.

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U.S. markets were relatively calm Monday as Wall Street entered the home stretch of second-quarter earnings season after a volatile week of trading fueled by recession fears.

Trading activity often picks up during the month or so every quarter in which America’s largest companies report results. But this past month, especially the last two weeks, has been characterized by abnormal swings in the stock market.

Volatility spiked last week to its highest since the onset of Covid-19 after a soft jobs report and a rate hike from the Bank of Japan sparked a multi-day sell-off.

Those intervening factors, as well as political uncertainty, have clouded the outlook for U.S. equities coming out of what has for the most part been a solid earnings season.

Below, we look at some of the major themes that have characterized this past quarter’s earnings reports.

Profits Are Holding Up

The S&P 500 as a whole was on track to report earnings growth of 10.8% as of Monday, according to data from FactSet. If that ends up being the actual growth rate once all 500 companies have reported, it will be the index’s highest since the fourth quarter of 2021 (31.4%). 

And companies have so far beat earnings estimates at a rate (78%) slightly above both the 5-year (77%) and 10-year (74%) averages. 

However, the magnitude of those beats (3.5% on average) has lagged the norm (8.6% over the last 5 years), suggesting some weakness lingers below the surface.

Sales Lagging Earnings

Despite resilient earnings, revenue growth has lagged profit as consumers and businesses alike have reined in spending. 

The S&P 500 is on track to report revenue growth of 5.2% for the quarter, below the 5-year average of 6.7%. And the percentage of companies reporting better-than-expected revenue is also below the 5-year average. 

Top lines have been squeezed in recent quarters by inflation-pinched and cost-conscious consumers. But not every company has felt the pain equally. Burger chain Shake Shack (SHAK) reported its second consecutive quarter of double-digit revenue growth, while competitor McDonald’s (MCD) saw same-store sales decline in the second quarter. 

Analysts have attributed the disparity to the widespread perception that the price gap between fast-food chains and “fast-casual” restaurants like Shake Shack, Chipotle (CMG), and Sweetgreen (SG), has narrowed in recent years.

Executives have also noted the pressure that inflation, a slowing economy, and the evaporation of pandemic savings have put on lower-income Americans.

Wall Street Sours on Big Tech’s AI Spending

Big Tech companies are spending big on artificial intelligence, and they don’t plan to stop anytime soon. 

Alphabet (GOOGL) and Microsoft (MSFT) increased their capital expenditures (CapEx) by 91% and 55%, respectively, in the quarter, with much of that increase going toward semiconductors and other hardware for AI-powering data centers. Both companies said they expect to spend even more in the next year. 

The cost of Big Tech’s AI arms race scared Wall Street last month. The Magnificent Seven stocks notched a few of their worst days on record during the two weeks when most of the group reported earnings. 

The stocks will be tested again when chipmaker Nvidia (NVDA) reports earnings on August 28. That cloud providers have spent so profusely on AI hardware bodes well for Nvidia’s sales, but expectations are high after four consecutive quarters of triple-digit revenue growth. Even with its recent pullback, the stock could be hit by signs of weakening demand or evidence substantiating reports its next-generation Blackwell chips will be delayed by a design flaw.

Financial Sector Itching for Rate Cuts

The financial sector has reported the third-largest increase in earnings of any sector this quarter. Profit grew by 17.6% from the same quarter last year, and all five sub-industries—Insurance, Capital Markets, Consumer Finance, Financial Services, and Banks—have reported earnings growth. 

Elevated interest rates were once a boon to big banks, some of the sector’s largest players, as the interest they collected on loans grew. But their deposit costs have since caught up, eating into net interest income, a key financial metric for the industry. 

Now, with the Federal Reserve appearing poised to cut interest rates from their highest levels in decades, the sector approaches an inflection point. Lower interest rates could again pad banks’ interest margins as their deposit costs decline at a faster clip than their income from fixed-rate loans. 

The sector could also benefit from a pick-up in loan demand and a dash of relief for cash-strapped consumers, among whom credit card delinquency rates recently climbed to a 12-year high.

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Key Takeaways

• KeyCorp shares surged Monday morning after the bank announced a $2.8 billion investment from the Bank of Nova Scotia.
• Scotiabank will acquire about 163 million shares by the first quarter of 2025 after the companies receive regulatory approval.
• Cleveland-based KeyCorp called the investment a “unique opportunity to raise capital on attractive terms.”

Shares of KeyCorp (KEY) jumped Monday morning after announcing that the Bank of Nova Scotia (BNS) acquired a 14.9% stake in the bank, valued at roughly $2.8 billion.

Scotiabank will buy approximately 163 million shares over a pair of transactions, with the first being an $800 million investment at the end of the month. After the companies receive approval from regulators and the Federal Reserve, which they expect to take place by the first quarter of 2025, Scotiabank will invest another $2 billion in KeyBank.

KeyCorp Taking ‘Unique Opportunity to Raise Capital on Attractive Terms’

“Scotiabank approached us with a unique opportunity to raise capital on attractive terms,” KeyCorp CEO Chris Gorman said. “While we continue to be comfortable with our current capital position, we determined that the investment enables Key to accelerate our well-communicated capital and earnings improvement while bolstering our strategic position,”

Scotiabank will be purchasing shares set at a fixed price of $17.17 per share, a premium of roughly 17.5% to Friday’s closing price of $14.61.

KeyCorp shares were recently up about 13%, reaching levels not seen since early 2023. Scotiabank’s shares fell some 4%.

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Fund Significantly Boosted its Nvidia Stake While Slicing Its Apple Stake in June

Key Takeaways

• The Technology Select Sector SPDR Fund, which in June significantly increased its position in Nvidia and sliced its position in Apple, is down 6% this month amid concerns about the health of the U.S. economy.
• XLK broke down below the 200-day moving average during last Monday’s global selling rout but staged a recovery to reclaim the indicator by Thursday’s market close.
• The ETF’s price may encounter support around $200 and $194, while running into resistance near $210 and $218.

The Technology Select Sector SPDR Fund (XLK) is down 6% this month amid a downturn for technology stocks.

The fund has seen a volatile start to August amid concerns about the U.S. economy following several recent reports pointing to a softening of economic activity. XLK’s recent rebalancing in June, which increased its holding in artificial intelligence (AI) darling Nvidia’s (NVDA) from around 6% to 19% and reduced its allocation in iPhone maker Apple’s (AAPL) from about 22% to 5%, has also weighed on performance.

The rebalance means the fund didn’t fully capitalize on Nvidia’s impressive gains in the first half of year but realized a greater portion of its sharp correction in recent months. Since the June 21 rebalancing, Nvidia has dropped 17%, while Apple has gained 4%.

Below, we’ll take a closer look at the technicals on XLK’s chart and identify important price levels that investors will likely be watching.

Fund Reclaims 200-Day Moving Average

Since topping out in early July, the ETF’s price has fallen as much as 20% from its record high as investors booked profits in mega-cap tech stocks. More recently, the fund broke down below the closely watched 200-day moving average (MA) during last Monday’s global rout but staged a recovery to reclaim the indicator by Thursday’s market close.

Amid the possibility for further volatility within the technology sector, investors should monitor these important support and resistance levels on XLK’s chart.

Support Levels to Watch

The first key support area to watch sits around $200, currently just below the 200-day MA, where the price will likely encounter buying interest near the psychological round number and a minor peak that formed in the early part of the fund’s trending move between April and July.

A failure to hold this level could see the ETF revisit lower support at $194, an area on the chart where investors could look for entry points near a horizontal line connecting the December 2023 swing high with comparable lows in April and August. This area also lies in close proximity to an uptrend line stretching back to the October 2022 low.

Resistance Levels to Monitor

Initially, the fund’s price could run into overhead resistance near $210, where sellers could look to take profits around a trendline that links a period of March consolidation with a minor June pullback and the Aug, 1 pre-gap trading level.

Further bullish upside may drive a move to $218. This area could find resistance around the May peak and the daily high of several trading sessions in late July and early August, with the region also sitting just below the downward sloping 50-day MA.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.

As of the date this article was written, the author does not own any of the above securities.

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Key Takeaways

• A string of high-profile restaurant closures has fueled perceptions that the industry is in serious trouble or even collapsing.
• Hard data shows that restaurant sales are on the upswing despite the struggles of some prominent chains.
• Successful restaurants have expanded as others have faltered, but the successes have gotten less attention.

You may have noticed that the Red Lobster or Applebees in your town is closing down, or that Boston Markets, which used to be everywhere, have all but vanished. What’s going wrong in the restaurant industry?

Economic data shows and restaurant experts say there’s no need to fret—the industry as a whole is likely growing—but changing currents of the economy, as well as specific circumstances for some restaurants, have left a handful of well-known brands struggling to survive. 

“The restaurant industry is notoriously competitive,” Sara Senatore, a Bank of America analyst who specializes in restaurants, told Investopedia. “And in the current environment, what we’re seeing is a return to intense competition.” 

Closing Time

It’s easy to take a look at headlines and hear the hoofbeats of the Four Horsemen. 

In June, seafood chain Red Lobster declared bankruptcy and closed down at least 50 locations, and asked a bankruptcy judge for permission to shutter 100 more. Applebee’s closed 35 more locations than it opened last quarter, according to parent company Dine Brands’ latest earnings report. In January, TGI Fridays said it would close 36 “underperforming” locations. Boston Market, once a national rotisserie chicken chain, has closed hundreds of restaurants since 2023 and, as of March, was down to just 27 according to a report by Restaurant Business, an industry trade magazine.

But while some businesses struggle, others are gaining ground. For every Red Lobster that shutters, it seems, there is a Chipotle to take its place: the fast food burrito chain opened 52 locations in the second quarter alone, the company said in an earnings report in June.

As a whole, restaurants are gaining more ground than they are losing, data suggests. The National Restaurant Association, a trade group for the industry, forecasts that restaurants will bring in a record $1 trillion in revenue in 2024, and add 200,000 jobs. Data on retail sales from the Census Bureau show the industry growing too, with sales at food service and drinking places—the category that includes restaurants—up 6% in the first six months of the year compared to the year before. 

Are Closures a Red Herring?

If the industry is healthy, why are closures grabbing all the attention?

The closures may be particularly unnerving because they seem so sudden. For example, Red Lobster, a privately held company, was not required to file shareholder disclosures, so the public had little notice that a storm was brewing. On Red Lobster’s press website, the most recent news release before it filed for bankruptcy was headlined “Red Lobster Drops Music Tracks as Fresh as Their Cheddar Bay Biscuits.” 

According to press reports after the fact, Red Lobster had been plagued by a unique set of troubles including questionable management by the private equity firm that owned it and an Endless Shrimp promotion gone wrong.

“These are never things that just come out of nowhere,” Senatore said of mass restaurant closures. “There’s a longer term pattern that leads to this. But they appear to be more sudden, whereas openings don’t happen all at once.” 

The Struggle Is Real

The economic upheavals of the last few years also may be a factor in the latest round of closures even if those closures do not constitute an apocalypse.

Immediately after the pandemic, times were good for the restaurants that made it through. Diners had plenty of money in their pockets because of rapid wage growth, and a “revenge spending” mindset drove people to spend on dining out and other luxuries they had missed during lockdowns. 

But that wage growth was a double-edged sword, as restaurants had to raise their own wages to attract and retain staff, and also faced higher costs for food and other expenses. Now, with household budgets straining under higher-than-normal inflation and elevated interest rates for loans, customers may have reached their limit to pay for increasingly expensive restaurant tabs. Restaurants that haven’t adapted to the new economic realities are being left behind, Senatore said. 

There are signs that lower-income customers are eating out less and shifting their spending to cheaper restaurants, Evert Gruyaert, restaurant and food service leader at Deloitte, said. And restaurants can’t raise prices to cover their increased costs or else they’ll lose more customers.

“They cannot really pull the pricing lever anymore,” he said. “And in this war for customers, they have to go pretty creative on value and deals and promotions.”

But those promotions can be costly—think endless shrimp. 

“The combination of all of those things is putting a level of stress on brands that leads to, unfortunately, some of the announcements that you have seen,” he said.

There are a few other trends putting financial pressure on restaurants, Gruyaert said. The industry has made large capital investments in the last few years, including renovating buildings, buying self-service kiosks, upgrading kitchen equipment, and making other improvements. The debt incurred to make those investments is starting to bite harder because of high interest rates, a result of the Federal Reserve’s campaign to battle inflation.

“I made investments for the long term, and I might start seeing the benefits now: better customer experience, more efficiencies and all that stuff,” Gruyaert said. “But the reality is, from a cash flow perspective, just the interest that I need to pay for all those investments on a monthly basis is really putting pressure on my business.” 

The current environment may be especially challenging for sit-down restaurant chains, known in the industry as “casual dining” establishments, said Michael S. Kaufman, a consultant and lecturer on restaurants at Harvard Business School. Meals at places like that may be among the first sacrifices for people looking to cut costs.

“Consumers, as McDonald’s and others have indicated, are looking at discretionary spends more critically now. What’s a restaurant to do?“ he said. “Consumers are saying, ‘We’re struggling, or we’re beginning to struggle or we’re thinking more carefully about what we spend.’ And that combination for that middle market of Applebee’s, Chili’s, TGI Fridays, maybe even Outback, you know, it’s inherently going to be more challenging.” 

The chains that have flourished in the high-wage, high-inflation economy are those with relatively low labor costs, or who have found ways to save, by switching to electronic ordering for example, Kaufman said. But there will likely be more casualties.

“I don’t know that the ability to maintain the large fleets of traditional casual dining restaurants can continue,” he said.

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Key Takeaways

• Stellantis is ending production of an older Ram 1500 model, which could result in nearly 2,500 layoffs.
• The 1500 “Classic” is produced at a plant in Warren, Michigan.
• The automaker has not announced a replacement vehicle, which has raised alarm bells at the United Auto Workers union.

Stellantis N.V. (STLA) is ending production of its Ram 1500 Classic truck and laying off as many as 2,450 factory workers in the process. 

The vehicle is produced alongside the Jeep Wagoneer and Grand Wagoneer at a plant in Warren, Michigan. A newer version of the 1500 truck was introduced in 2018 and is produced at another plant in the area. 

“With the introduction of the new Ram 1500, production of the Ram 1500 Classic at the Warren (Michigan) Truck Assembly Plant will come to an end later this year,” a Stellantis spokesperson said. “…Other operations within the plant will remain on two shifts to support Jeep Wagoneer production.”

The layoffs are expected as soon as October. 

‘Decisive Actions’

Stellantis hasn’t announced a replacement vehicle for the 1500 Classic, which is a red flag for the United Auto Workers union, which won new labor deals with the big three Detroit automakers following a multi-week strike last year. 

The decision comes less than a month after the owner of the Chrysler and Jeep brands said it would take “decisive actions to address operational challenges” after it reported a 48% year-over-year slump in first-half net profit.

Shares of Stellantis fell 1.4% on Friday to a new 52-week low.

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Key Takeaways

• Canopy Growth Corporation shares dropped Friday after reporting worse-than-expected earnings.
• Revenues came in 13% lower than a year earlier and net loss widened substantially.
• Canadian adult-use cannabis sales for the company decreased, offset by an increase in medical cannabis sales

Canopy Growth Corporation (CGC) shares dropped Friday after the company’s first-quarter fiscal 2025 earnings fell significantly short of expectations.

The cannabis producer’s revenue of 66.2 million Canadian dollars ($48.2 million) came in 13% lower than a year earlier and missed analysts’ projections of C$72.1 million. Its net loss widened to C$1.60 per share from C$0.69 per share, more than double the consensus per share loss. 

Canadian adult-use cannabis sales for the company decreased 22% to C$18.9 million, mostly offset by a 20% increase in medical cannabis sales to C$18.8 million. 

Looking ahead, Canopy is setting its sights on the second half of the fiscal year. 

“The fundamentals of our business continue to strengthen, and our focus on profitable revenue generation is yielding clear results as we set the stage for growth in the second half of fiscal 2025,” said Canopy CEO David Klein. 

Shares of the Ontario-based company fell 7.95% in trading Friday, although they’re up roughly 32% year-to-date.

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