Morning Reads


Todays Open Interest Change




The IPO market is showing some signs of life after waves of economic uncertainty and a monetary policy tightening cycle that put the brakes on going public. There have been 44 IPOs in the U.S. this year that have raised $7.3B, which are soon set to overtake last year's 71 IPOs that raised $7.7B, according to Renaissance Capital. It still pales in comparison to the bumper listings of 2021, whose 397 IPOs raised $142.4B, highlighting that the market is still a ways away from a full comeback.

Add some harissa: Fast-casual Mediterranean restaurant chain Cava will become the latest company to test the waters today as some bullish sentiment returns to Wall Street. Shares have been priced above range at $22, raising almost $318M and valuing the company at about $2.45B. The company is set to list on the New York Stock Exchange this morning under ticker symbol "CAVA," using proceeds from the offering to fund future new restaurant openings and general corporate purposes, such as loan repayments, construction and capital expenditures.

"The concept is not yet GAAP profitable but has very intriguing restaurant-level metrics that suggest significant potential as they scale," writes SA analyst Kingdom Capital. One of the key figures to analyze is whether Cava can emulate Chipotle's (CMG) growth and margins and avoid the cash burn and price decline of Sweetgreen (SG), which was the last restaurant to go public in late 2021. Citing some red flags, David Trainer takes a more skeptical stance on the company, reiterating a warning based on a reverse discounted cash flow model and bloated valuation.

Outlook: Many of the IPOs coming to market have different fundamentals, with Cava's set to size up investors' feelings about growth-oriented companies that are still not turning a profit. It logged a net loss of $59M in fiscal 2022, widening from the $37.4M loss in the prior year, though its revenue growth rates and new location expansions have been noted in the filing. For those looking for exposure to the broader IPO industry, the Renaissance IPO ETF (NYSEARCA:IPO) has returned 32% this year, compared to the 14% gain of the S&P 500.

Taking a timeout?

Breaking a streak of 10 straight hikes over 14 months, the Federal Reserve on Wednesday kept its policy rate unchanged at 5.0%-5.25%. "Nearly all policymakers" still feel further hikes will be appropriate this year, according to Fed Chair Jerome Powell, who added that none of them projected a rate cut for 2023. Markets were initially rattled by the Fed's year-end peak rate projection, but ended mixed as traders sized up the dot plot. In WSB's podcast special, Investing Group Leader Chaim Siegel said the Fed needs to be more aggressive to rein in inflation and the fact that an overbought market didn't tumble on "bad news" is bullish for stocks. On the crypto front, SA's Crypto Roundtable also reviews analyst predictions post-Fed, including inflation hedges and the SEC's crackdown. (122 comments)

Break 'em up

The European Commission is threatening the breakup of Google's (GOOGGOOGL) advertising technology business amid antitrust concerns. The regulator takes issue with Google favoring its own online display ad tech services over competitors, but a Google executive counters that the claims are not new and relate to a narrow part of the advertising business. The search giant could be hit with about €8 billion in penalties due to the alleged anti-competitive practices. (14 comments)

More support

As anticipated, the People's Bank of China slashed its one-year medium-term lending facility rate by 10 basis points to 2.65%, two days after cutting the seven-day reverse repo rate to ensure sufficient liquidity in the banking system. The moves come at a time when Beijing is weighing stimulus measures to boost faltering economic growth. The latest figures showed that China's industrial production growth and retail sales missed expectations, signaling continued economic weakness. Weighing in on the matter, SA Investing Group Leader Daniel Jones believes China's monetary easing bodes well for industrial stocks. (1 comment)

Today's Markets

In Asia, Japan -0.1%. Hong Kong +2.2%. China +0.7%. India -0.5%.
In Europe, at midday, London flat. Paris -0.8%. Frankfurt -0.7%.
Futures at 7:00, Dow -0.2%. S&P -0.4%. Nasdaq -0.7%. Crude +1.6% to $69.37. Gold -1.2% to $1,945.50. Bitcoin -4.2% to $24,868.
Ten-year Treasury Yield +3 bps to 3.82%.

Today's Economic Calendar

8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
8:30 Retail Sales
8:30 Empire State Mfg Survey
8:30 Import/Export Prices
9:15 Industrial Production
10:00 Business Inventories
10:30 EIA Natural Gas Inventory
4:00 PM Treasury International Capital
4:30 PM Fed Balance Sheet

Companies reporting earnings today »

What else is happening...

Citigroup (C) finance chief says markets revenue off 20% so far in Q2.

Jury: Berkshire (BRK.BBRK.A) utility must pay damages for 2020 fires.

Crude oil ends lower on U.S. supply build; JPM dims price outlook.

Patterson-UTI (PTEN), NexTier (NEX) to merge in all-stock deal.

Shell (SHEL) to boost gas production, raise dividend by 15%.

XPeng (XPEV) rolls out assisted driving software system in Beijing.

Why did CVS (CVS) drop yesterday? Managed care cost concerns.

Target (TGT) gains on speculation it could attract an activist investor.

Shares of Nike (NKE) sprint higher in strong day for footwear stocks.

Microsoft (MSFT), Activision (ATVI) request 5-day hearing in FTC suit.

Estee Lauder (EL) rises as cosmetics maker teases anti-aging research.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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