As it turns out, denim really never goes out of style.

Yesterday, Levi Strauss reported stronger-than-expected second-quarter earnings as resilient consumer demand continued to fuel growth. Its pivot into a direct-to-consumer business is going well: DTC sales rose 11%, with more than half of the company’s revenue now coming from its own stores and website.

The clothing giant is also doubling down on premium denim: Sales of its high-end Blue Tab collection (which can retail for upward of $300 per pair of jeans) jumped 40% this quarter. While it remains a small portion of Levi Strauss’ overall revenue mix for now, CEO Michelle Gass said premium denim could become a $200 million business.

Despite the strong quarter and raising guidance, Levi’s failed to meet investors’ high expectations. Shares fell over 5% yesterday and another 2.22% today.

A tougher sell

Not every company is finding shoppers quite so willing to open their wallets.

PepsiCo painted a much weaker picture. While the consumer goods company beat revenue estimates and reiterated its full-year guidance, it missed earnings expectations. More importantly, weakness persisted across its two main businesses in North America, where food volumes were flat and beverage volumes fell 4%, extending a multiyear slowdown as consumers continue pushing back against higher prices.

“I think the consumer is worse than what we had anticipated, and it’s driven mainly by gas prices,” CEO Ramon Laguarta said on the earnings call.

Unlike Levi’s, which is finding success by selling more premium products, PepsiCo is trying to win back more price-sensitive shoppers. The company cut prices by as much as 15% on products including Lay’s, Doritos, Tostitos, and Cheetos earlier this year, but the latest results suggest the strategy has yet to meaningfully revive demand. Shares sank 3.25% today.

Setting the stage

Levi’s and PepsiCo are among the first companies to report this earnings season, offering an early read on the health of the US consumer. Their businesses certainly paint a picture of how things are going in our K-shaped economy: Levi Strauss has shoppers buying $300 jeans, while PepsiCo is still struggling to get consumers to buy a bag of Doritos.

More broadly, analysts expect S&P 500 companies to grow earnings by roughly 24% this quarter—down from about 30% last quarter—with profits on track to top $700 billion, per LSEG. Much of that growth is expected to come from tech and financials, which together are projected to generate roughly $456 billion in profits. While banks are benefiting from record dealmaking, AI earnings growth is expected to moderate after several quarters of blockbuster results fueled by massive infrastructure spending.

That puts even more pressure on AI leaders to deliver: Nvidia and Micron alone are expected to account for roughly 40% of the S&P 500’s earnings growth this quarter. Maybe they could take a page out of Levi Strauss’ playbook and roll out some high-end bell bottom jeans.—SY

🟢 What’s up

• Meta Platforms gained 4.7% after rolling out a major update to its Muse Spark AI model.
• Speaking of which, SanDisk gained 7.54% following a multi-year NAND flash memory supply agreement with Meta Platforms.
• Micron rose 4.52% on plans to invest up to $3 billion to expand its US semiconductor supply chain.
• Cerebras Systems advanced 9.25% after announcing a major AI infrastructure expansion across Europe.
• MARA Holdings rose 9.86% on plans to acquire a powered land site in Texas to support future data center growth.
• Starbucks climbed 2.47% thanks to plans to build an in-house AI system.

What’s down

• Costco fell 4.21% as June comparable sales growth slowed from the prior month.
• Paramount Skydance dropped 4.31% amid reports that several US states plan to challenge its acquisition of Warner Bros. Discovery on antitrust grounds.
• AstraZeneca slipped 5.72% after its heart disease drug Wainua missed its primary endpoint in a late-stage trial, dragging partner Ionis Pharmaceuticals down 23.9% as well.
• Salesforce declined 2.45% following a KeyBanc downgrade that questioned whether its Agentforce AI platform will drive meaningful upside.
• MDA Space tumbled 8.55% on plans to acquire a majority stake in French satellite maker Collecte Localisation.

If you’re reading this, chances are you’re living at home with your mom and dad.

A recent report from the Federal Reserve reveals that 49% of Americans under the age of 30 are living with their parents. Meanwhile, Realtor.com says that 33% of Americans under age 35 are living with their folks. You can slice the numbers up however you want, but they all point to the same thing: It’s pretty darned hard to buy a house these days.

Today’s data from the National Association of Realtors just adds more evidence of exactly that. June is usually the strongest month for home sales, capping off the key spring selling season—but sales sank 2.4% from May, lower than economists were expecting.

The problem is twofold. First, home prices remain sky-high: The median price of a home sold last month was $440,600, up 1.8% year over year and a new all-time record. Second, mortgage rates popped in 2022 and never came back down: There was some hope when rates dipped below 6% at the beginning of this year, but the war in Iran has sparked rising inflation, which will likely push the Fed to hike rates, which will only keep mortgage rates elevated.

TLDR: You might be living in mom and dad’s basement for a little while longer.—MR

For some investors, sin stocks such as alcohol makers, casinos, and gun manufacturers are to be avoided at all costs. But one member of this sinful bunch is rising straight to the heavens.

Tobacco stocks are on a hot streak these days, thanks to a recent big break from the FDA. The regulator ruled in May that tobacco companies can put new vapes and oral nicotine pouches on store shelves before they’re fully approved—a reversal in once-stringent policies that provides these companies with more avenues for growth.

And grow they have: Philip Morris International is up 12.9% this year, while Altria Group has climbed 24.18%, putting both ahead of the S&P 500 in 2026.

Smoke break

Tobacco companies watched their sales go up in smoke in the ‘90s and early 2000s as regulations and health-conscious consumers ate into their revenue. But the pivot to smokeless products a few years back has breathed new life into the industry.

Nicotine pouches have been a particularly big hit: The New York Times reports that worldwide pouch sales are expected to rise from $6.9 billion last year to over $40 billion worldwide by 2033. While chewing tobacco has its fans (mainly old-timey baseball managers), younger users have turned to pouches in droves, prompting tobacco companies to explore other alternatives such as gum and lozenges. The FDA’s new ruling will only create more opportunities to come up with addictive new products.

That’s great news for Zyn parent company Philip Morris International, which made 41% of its sales from non-combustible products last year. About 20% of British American Tobacco’s revenue came from smokeless products last year, such as Vuse vapes and Velo pouches. And while Altria only got 12% of its revenue from oral tobacco and vape products last year, it plans to roll out more products under the Marlboro brand, which remains one of the most iconic brands in the market.

A potent combination

Smoking stocks have always been appealing to income investors, who love their strong dividends. The three largest tobacco companies by market cap are Philip Morris International, Altria Group, and British American Tobacco, which provide dividend yields of 3.08%, 4.37%, and 5.02%, respectively. The average dividend yield on the S&P 500 sits at just 1.05%.

Usually investors have to choose between income or growth, but in tobacco’s case, it now offers both. That could be a pretty addictive combination.—MR

• It’s not just Nvidia: Most of the Mag 7 stocks look shockingly cheap right now.
• The National Highway Traffic Safety Administration says robotaxi manufacturers need to stop their cars from interfering with first responders.
• Kevin Warsh’s new Fed task force features business luminaries like Marc Andreessen.
• Goldman Sachs just banned its staff from using prediction markets.
• The K-shaped economy is still alive and well: Households in the top 10% income bracket spend as much on non-essential items as the entire bottom 70% combined.
• Hasbro is rolling out adult Play-Doh. Has science finally gone too far?

Earnings announcements: The only thing worth watching tomorrow is Delta Air Lines’ quarterly report, which analysts are expecting to be very solid as the company continues to shift its focus to its highest-paying customers.