Good morning! I usually don’t get Starbucks coffee, but today I will.

The most famous caffeine distributor in the world just became more valuable by several billions of dollars.

And it left your favorite burrito spot bruised in its wake.

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The coffee looks hotter than ever

Imagine this.

You leave a job and your old company’s shareholders immediately miss you. Simultaneously, the shareholders at your new company welcome you as if Christmas came early. 

That’s what happened Tuesday when Chipotle CEO Brian Niccol suddenly left his post to take on the same position at Starbucks.

Between the two stocks, roughly $26 billion in value shuffled on the news. 

Starbucks finished the trading session nearly 25% higher — its largest one-day percentage increase since its IPO in 1992.  

Meanwhile, Chipotle shed almost 8%. 

Starbucks’ current chief executive and the successor to Howard Schultz, Laxman Narasimhan, will step down from his role after 16 months.

He’s faced public criticism from Schultz as the business has underperformed over the last year. 

Up to Monday, Starbucks stock had declined 22% on his watch. 

The meteoric Tuesday rally tells us plenty about Wall Street’s relief to have Niccol in and Narasimhan out.

Research teams at TD Cowen, Piper Sandler, and other firms raised their outlooks for Starbucks in response to the new management.

“We've talked to some insiders at Starbucks that said Laxman just didn't he didn't understand retailing, any restaurant retailing, and he did not understand the Starbucks culture,” said Nancy Tengler, the chief investment officer and CEO of Laffer Tengler Investments.

“I don't think Brian Niccol is going to make that mistake.”

Enthusiasm is always welcome among investors. Yet those pulling for Starbucks still face an uphill road ahead, including headwinds posed by activist investors. 

And Niccol, for his part, has to figure out how to steer a company that’s three times the size of Chipotle in revenue.

Not only that, but competition in the coffee business remains fierce, with a growing number of established chains in China. 

For what it’s worth, when you zoom out over the last 12 months, Chipotle stock has dramatically outperformed that of Starbucks. It’s not close.

“Aside from the power to change the direction of macro headwinds, we view the shareholder euphoria (as expressed in the share price this morning) as premature,” Nick Setyan, an analyst at Wedbush, wrote in a Tuesday note on Starbucks. 

Niccol is due to start his new gig September 9. 

Comments or feedback? Hit reply to this email or let me know on X @philrosenn.

Elsewhere:

📉 Inflation is expected to keep cooling. At 8:30 a.m. ET, the July CPI report will publish. Consensus estimates see headline inflation coming in at 3.0%, unchanged from the prior month. That will follow Tuesday’s cooler-than-expected PPI inflation report. (Yahoo Finance)  

📈 Recession odds are climbing. Financial markets are pricing in a higher likelihood of a downturn, according to analysts across Wall Street. The market-implied odds for a recession have climbed materially, according to forecasting models at JPMorgan and Goldman Sachs. One estimate sees a 41% probability for a recession. (Bloomberg)

💰️Investors are piling back into bonds. Fixed-income funds have seen more than $66 billion of inflows since the start of July as market participants look for a hedge against the recent volatility. During last week’s stock turmoil, US bonds and other highly rated debt staged a rally. (FT)

Rapid-fire:

Interview:

I sat down with investor Anthony Pompliano, the co-founder of Opening Bell Daily, to discuss market volatility, the Federal Reserve, and bitcoin’s price fluctuations.

Last thing:

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