Market Review: February 03, 2025

Closing Recap

Monday, February 03, 2025

Index

Up/Down

%

Last

DJ Industrials

-122.75

0.28%

44,421

S&P 500

-45.96

0.76%

5,994

Nasdaq

-235.49

1.20%

19,391

Russell 2000

-29.28

1.28%

2,258

 

 

 

 

 

 

 

 

 

U.S. stocks were volatile to kick off the week, down more than 2% overnight on U.S. tariff headlines against its trading partners, only to recover sharpy off lows following developments in trade discussions this morning. Just a few days after President Trump announced 25% duties on Canada and Mexico amid the ongoing security issues on their borders, and 10% on China this weekend (energy imports from Canada will be lower with a 10% duty), the President announced this morning he would pause tariffs planned for Mexico for one-month and that negotiations would continue to reach a “deal” between the two countries. Trump noted, “I just spoke with President Claudia Sheinbaum of Mexico. It was a very friendly conversation wherein she agreed to immediately supply 10,000 Mexican Soldiers on the Border separating Mexico and the United States. These soldiers will be specifically designated to stop the flow of fentanyl, and illegal migrants into our Country.” U.S. stock markets rejoiced on the quick agreement, as major averages posted sharp bounces off their lows. Markets now await Canada which this past Saturday Canadian Prime Minister Justin Trudeau said Canada would respond with 25% retaliatory tariffs on C$155B of US goods; tariffs on C$30B of US goods would come into force on Tuesday and another C$125B in 21 days. President Donald Trump has also threatened to widen the scope of his trade tariffs, saying that the EU and potentially the U.K. will face tariffs, though didn’t specify a timeline. Outside of the tariff headlines it was a quiet day with a few some positive economic data points, while markets await a barrage of earnings results this week and key monthly jobs data (JOLTs tomorrow, ADP Wednesday, jobless claims Thursday and Nonfarm payrolls Friday).

 

A few takes on the tariffs and calls on Wall Street: 1) former JPM Strategist Marko Kolanovic, who abruptly exited from the firm last summer, maintains his pessimistic outlook on the US market (though it’s trading much higher than when he left), saying “I do think we’ll go back down in the 5,000s this year,” Kolanovic said on Bloomberg’s Odd Lots podcast. Potential turmoil from the new political climate could bring the gauge down “much lower into 4,000 — I think there’s some probability of that.” 2) Goldman Sachs economists estimate that if the latest trade tariffs announced by U.S. President Donald Trump after assuming office in his second term are sustained, they could take a significant chunk out of Corporate America’s bottom line. Goldman Sachs estimates that every 5%-point increase in the tariff rate would lower the S&P 500’s earnings per share by roughly 1% to 2%. As a result, if sustained, Goldman said the latest tariff announcements could bring about a reduction in its forecasts for the S&P 500’s earnings by roughly 2% to 3%, not considering any added impact from other trends such as monetary policy uncertainty.

Economic Data

  • S&P Global January final manufacturing PMI at 51.2 (vs flash 50.1).
  • ISM U.S. manufacturing activity index 50.9 in January (above consensus 49.8) vs 49.2 in December while the prices paid index 54.9 in January (consensus 53.5) vs 52.5 in December; new orders index 55.1 in January vs 52.1 in December; employment index 50.3 in January vs 45.4 in December.
  • Dec construction spending +0.5% (above consensus +0.2%) vs Nov +0.2% (prev unchanged); Us Dec private construction spending +0.9%, public spending -0.5%.
  • The Treasury Department said it needs to borrow less money than originally expected in the current quarter because it kicked off the year with more cash on hand than planned. The department, which is responsible for the government’s borrowing, said Monday afternoon that in the January to March quarter, it expects to borrow $815 billion. The previous estimate, shared in October, was for $823 billion.
  • The National Association of Home Builders (NAHB) sent a letter to the White House asking President Trump to consider making certain construction materials exempt from the levies. This comes as broad tariffs against Canada, Mexico and China are set to go into effect. NAHB notes inputs to residential construction prices have increased over 30% since January 2021 and that Canada and Mexico represent nearly 25% of building materials imports.

Commodities

  • U.S. WTI crude oil futures settle at $73.16 per barrel, rising $0.63 or 0.87% and Brent Crude futures settle at $75.96/bbl, up $0.29, or 0.38%. OPEC+ JMMC meeting kicked off today and recommendations for broader policy changes remained unchanged. April gold prices rise $22.10 to settle at $2,857.10 an ounce holding near all-time highs. U.S. spot natural gas prices for January rose to a three-year high at the Henry Hub NG- benchmark in Louisiana, as gas prices averaged $4.13 per million British thermal units in January, their highest for the month since 2022. That compares with a three-year low of $3.18 in January 2024 and a 5-yr avg. of $3.11 for the month. Front Month Nymex Natural Gas Rose 10.12% to Settle at $3.3520 per mln Btu.

Currencies & Treasuries

  • Lots of volatility in currency markets following tariff headlines overnight/this morning. Overnight, the Mexican peso tumbled to near three-year lows while the Canadian dollar extended last week declines to trade over 20-year lows, dropping over 1% to C$1.473 against its US counterpart. The Euro was down just under 1% to 1.027 before staging a rebound. The movers came after the Trump administration announce tariffs on Mexico and Canada and warned of levies vs. the EU this week. However, the dollar index (DXY) reversed lower late morning after Trump paused new tariffs on Mexico for one month, after the country agreed to reinforce its northern border with 10,000 National Guard members. The dollar index later slumped as low as 108.60 after highs of 109.88 in early trading. Bitcoin prices hit lows around $91,000 overnight on the tariff concern fears hitting markets but rallied back to $100,000 by this afternoon after Mexico and the U.S. made progress on trade talks.

 

Macro

Up/Down

Last

WTI Crude

0.63

73.16

Brent

0.29

75.96

Gold

22.10

2,857.10

EUR/USD

-0.0068

1.0294

JPY/USD

-0.29

154.89

10-Year Note

-0.024

4.542%

 

Sector News Breakdown

Autos:

  • In Autos: Shares of Ford (F), GM, TSLA and other auto makers and suppliers (BWA, LEA, VC, ADNT) slide as over the weekend, the Trump Administration announced the implementation of 25% tariffs on Mexican imports of 25%. In 2023, the U.S. imported $65bn in vehicle parts and $93bn in vehicles from Mexico according to Bank America.
  • Monthly electric vehicle updates show: LI announced that it delivered 29,927 vehicles in January 2025. As of January 31, 2025, Li Auto’s cumulative deliveries reached 1,163,799. NIO said in January that 13,863 vehicles were delivered, representing an increase of 37.9% y/y. The deliveries consisted of 7,951 vehicles from the Company’s premium smart electric vehicle brand NIO, and 5,912 vehicles from its smart electric vehicle brand ONVO. XPEV delivered 30,350 Smart EVs in January, representing a 268% increase y/y, surpassing 30,000 units for the third consecutive month. XPENG MONA M03 has delivered over 15,000 units per month for two consecutive months. BYDDY said Jan Total Vehicle Sales 300,538 Units; up 49.2%; and January total production 327,864 up 59.5% y/y.

Retail, Consumer Staples & Restaurants:

  • In Retail: TPX was cleared to proceed with its $4B acquisition of Mattress Firm Inc. after a federal judge in Texas rejected a claim by the FTC that the deal would hurt consumers https://tinyurl.com/39ztn34h . In research, PVH was downgraded at Wells Fargo saying while the stock is trading near lows on valuation, it’s feeling like a continued value trap setup as they can’t ignore the mounting issues which include possible China exit tail risk, sluggish Brand Heat impacting DTC sales, and growing inventory risk. Wells raise ests for BBWI and TPR and are among top picks in group along with BURL (best way to play Off-Price), CPRI (margin oppty, possible monetization of Versace), and REAL (story set to inflect with profitability now scaling). Furniture stocks (RH, WSM, W) slipped on concerns that the industry’s long-awaited turnaround would be delayed as President Donald Trump imposes new tariffs on imports from China.
  • Food & Beverage names impacted by tariff headlines to Mexico & Canada: avocado suppliers such as CVGW, and AVO slipped early, with over 90% of the avocados consumed in the US coming from Mexico. Tariffs are also set to impact alcohol beverage companies including shares of STZ, TAP. Restaurant operators are under pressure as tariffs would result in higher food costs, with a significant portion of produce imported from Mexico (CMG, CAVA, CAKE, SBUX) as well as others. TSN reported Q1 EPS and sales above consensus ($1.14/$13.62B vs. est. $0.91/$13.44B), Overall sales volume increased 1.6%, while average prices rose 0.7% and said sees Fy25 sales to be flat to up 1% from the year prior; STZ was downgraded to Neutral from Overweight at Piper and cut tgt to $200 from $245 after President Trump has followed through on his pledge to impose 25% tariffs on all Mexican imports.

Energy

  • Energy stocks (XLE) outperformed other sectors as oil prices remained strong after President Donald Trump imposed tariffs on Canada, Mexico and China, raising fears of supply disruption. U.S. imposes 25% tariffs on Canadian goods, including 10% tariffs on Canadian energy imports and 10% tariff on Chinese imports from Feb. 4. TD Cowen said it expects U.S. refiners that run Canadian crude on the margin to switch to light sweet crude, increasing WTI and Brent prices if tariffs go ahead.
  • In Utilities: AWK was to Underperform from Neutral at Bank America given the stock’s relative premium to the water group and its view that high premium utilities continue see compression versus value. The firm meanwhile upgraded SJWR to Buy as they think the company has cleaned up execution and provided a clear and achievable growth story, while trading at the lowest water utility multiple (15% discount) of any pure-play US water utility.

Biotech & Pharma:

  • Earnings tomorrow morning from Dow component MRK in Pharma and REGN in biotech.
  • BAX announced current CEO Joe Almeida will step down from his role immediately, with Brent Shafer to serve as interim CEO as the company initiates search. Current Medical Products and Therapies head Heather Knight to be elevated to the COO seat.
  • BDX shares active after activist investor Starboard pushes the medical device maker to spin off unit. Activist investor takes stake in $72B medical technology company in fund’s latest healthcare sector campaign – FT reported
  • GHRS said its therapy for treatment-resistant depression met the primary goal of mid-stage trial by reducing the severity of the disease as measured on a widely used scale; the company said 57.5% of patients on the therapy, GH001, had less severe disease at 8 days.

Healthcare Services & MedTech movers:

  • In Medical Supplies: OMI guided Q4 prelim adj EBITDA $135M-$140M vs $156M est. and Q4 revs also below expectations while narrows FY EPS guide to $1.50-$1.53 vs prior guidance $1.45-$1.55 and sees Fy revenue $10.67B-$10.70B vs prior guidance $10.6B-$10.8B.
  • In the Animal Health sector: IDXX shares outperform as reports Q4 results ahead, with revs $954M (vs. $935M consensus, with Organic Growth +6%, CAG largest beat vs. cons) and EPS of $2.62 (vs. $2.40 est. and guides 2025 organic growth to 6% to 9%, with CAG organic growth of 5% to 8%, and EPS of $11.74 to $12.24 (vs. $11.94 est.)
  • Med Tech: tariff impact discussed by some analysts: Bank America said CNMD, TFX, HAE, GEHC, MMSI, ITGR seem most at risk. Notes CNMD and TFX use Maquiladoras complicating the analysis. It’s not clear how Maquiladoras will be treated yet but assuming Maquiladoras do nothing to offset the impact we estimate CNMD could see a 350bps margin impact (26% EPS impact) and TFX could see 300bps margin impact (11% EPS impact), and ITGR 180bps margin impact (12% EPS impact). We also estimate HAE could see 300bps margin impact (15% EPS impact), MMSI could have 150bps margin impact (8% EPS impact) and GEHC could see 100bps margin impact (8% EPS impact). Bank America said they see immaterial impacts to BSX, EW, SYK, ZBH, and DXCM, and most of the SMID.
  • Life Sciences & Tools: DHR downgraded from Outperform to Market Perform at Raymond James saying the outlook looks murkier post Q4, potentially making it easier for funds to flow in elsewhere in the intermediate term. In short, what was viewed as a higher value portfolio capable of generating leading growth is guided lower than the peers the firm covers. HOLX downgraded from Buy to Hold at Needham since it believes that it is facing several headwinds that it believes will result in slower top and bottom-line growth in CY25; said headwinds include slower mammography gantry placements given completion of the 3D mammography conversion and ahead of new gantry launch in CY26, slower cytology growth due to the proposed USPSTF recommendation changes.

Transports

  • In Transports: Loop Capital said it has eliminated all positive ratings in the transportation sector and recommend its clients don’t add to positions until the dust settles in "trade war". The firm double downgraded CP to Sell from Buy, CNI downgraded to Sell from Hold, UNP downgraded to Sell from Hold and downgraded FDX, CSX, NSC, GXO to Hold from Buy. Loop said “here’s the problem with tariffs: even if they work the benefits are all back-end loaded, while the pain is up front and immediate. With duties scheduled to go into effect at midnight on Tuesday, that means U.S. Customs and Border Protection (CBP) will start assessing and charging import duties at 12:01AM as every plane land, docks, and truck and train arrives.”
  • In Industrials: CAT was upgraded to Neutral from Sell and raised tgt to $385 from $355 saying after two consecutive quarterly EBIT misses, expectations for CAT have lowered and says with a reasonable initial 2025 outlook, UBS believes risk/reward is now balanced. In HVAC, LII was downgraded to Underweight at Wells Fargo saying they see elevated uncertainty in 2025 on A2L price realization, potential share pressure, & not only pre-buy headwinds in Q1, but also tough Q4 comps on both volume and margins.

Aerospace & Defense

  • In Aerospace & Defense: TGI shares jump as Private equity firms Warburg Pincus and Berkshire Partners agreed to take the aircraft parts and services supplier private for about $3 billion, including debt as the buyout firms offered to pay $26 per share in cash https://tinyurl.com/4999mfe5 ; BAH was upgraded to Outperform from Market Perform at Raymond James with a $150 price target saying they see the substantive y/y backlog increase, $1B buyback, and ~30% post-election decline in BAH shares as tilting risk/reward favorably with history as a guide. The firm also said it likes the current timing to revisit DOGE impaired names as it believes the “what if” DOGE investors will change to “what if” Tariff investors as they look to move away from tariff exposed names. NOC upgraded from Underperform to Peer Perform at Wolfe Research saying Q4 was pretty clean (vs. more painful sessions at LMT ) and though sales were a couple of points behind Wolfe’s ests, FCF was just ahead.

Materials, Metals & Mining

  • In Metals & Mining: U.S. Steel (X) was downgrade to EW from Overweight at Morgan Stanley as the stock is now trading near its standalone valuation of $39 per share and the firm still sees meaningful value creation from US Steel’s transformational investments at Big River. CLF shares fell as Q4 revs $4.3B vs. est. $4.494B.
  • In Chemicals: German mineral mining group K+S (KPLUY), which also produces potash fertilizers in Canada, said that import tariffs to be imposed by the United States would greatly challenge U.S. farmers. The group ships about 300,000 tonnes of potash from its Bethune site in the Canadian province of Saskatchewan into the U.S. per year; shares of NTR, MOS, CF were all active as well.

Internet, Media & Telecom

  • In Media: MSGS, the embattled cable TV station that airs New York Knicks and Rangers games, is in talks to reach a deal to avoid bankruptcy as soon as Friday — and insiders speculate that help could be coming from a deep-pocketed media player like AMZN as reported by the NY Post https://tinyurl.com/rzjfpkjb In broadcasting (CMCSA, FOXAthe Washington Post reported NFL owners are increasingly convinced the league is headed for an 18-game season, w/ the Super Bowl played over Presidents’ Day weekend
  • In 3D sector: SSYS shares jumped after announced that Fortissimo Capital has entered into an agreement to invest $120 million in the Company, acquiring approximately 14% of Stratasys’ issued and outstanding ordinary shares through a direct purchase of 11,650,485 newly issued ordinary shares at $10.30 per share.
  • Tech & Info Services; Jefferies said for their software and data services names, it expects a wide range of outcomes as they upgraded SSNC to Buy on expectations of a return to sustainable mid-single digit organic revenue growth while they downgraded SPNS to Hold on expectations of little to no improvement in growth in 2025. Into the print, the firm is positive on SMWB on likely solid guidance, neutral on SEMR given high investor expectations, and concerned about potentially soft guides at SPT and ZI.

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.