Closing Recap

Wednesday, February 05, 2025

U.S. stocks finished at the highs of the day, led by a bounce in Smallcaps and interest rate sensitive sectors as Treasury yields tumble to 2025 lows along with a decline in the US dollar as disappointing earnings and mixed economic data countered easing concerns of a spreading global trade war. The S&P (SPX) 500 biggest sector winners were REITs, Utilities and Financials, all interest rate sensitive sectors along with Technology up over 1% on a surge in semiconductors and Healthcare behind better earnings from AMGN. The bounce in semis (SOX) came after GOOGL announced hefty capex spending plans in 2025, lifting the likes of AVGO, ARM (though shares of GOOGL fell), and overshadowed disappointing AMD earnings results. Tariff headlines that dominated the prior two-days of trading were quiet today as Mexico and Canada tariffs have been delayed 30-days while the US is currently in the middle of tariff exchanges with China. On the economic front, a stronger-than-expected pick-up in ADP‘s private payrolls data (ahead of the nonfarm jobs report Friday) was offset by a surprise deceleration in the ISM services sector, while record high imports pushed the U.S. trade deficit sharply wider. In central banks, the Bank of England rate decision is tomorrow with expectations of a 25bps cut to 4.5%.

• U.S. S&P Global January final services PMI at 52.9 (vs flash 52.8) and U.S. S&P Global January final composite PMI at 52.7 (vs flash 52.4).
• ISM report on U.S. non-manufacturing sector shows PMI 52.8 in January below consensus 54.3 and vs 54.0 in December; business activity index 54.5 in January vs 58.0 in December; prices paid index 60.4 in January vs 64.4 in December; new orders index 51.3 in January vs 54.4 in December; employment index 52.3 in January vs 51.3.
• The US trade deficit widened sharply at the end of 2024 as imports increased by 3.5% in the month of December while exports fell by -2.6%, taking the deficit to $98.4 billion, rising 25% from $78.2B in November, Commerce Department data showed. Economists had been expecting the trade deficit to be $96.8B in December.
• The Mortgage Bankers Assoc said weekly US mortgage applications index rose +2.2%, the purchase index falls -3.5%, mortgage refinance index climbs 12.2%; average 30-year mortgage rate falls 5 bps to 6.97% in Jan 31 week.
• China Caixin Services PMI softened to 51.1 in January from 51.4 prior, its slowest expansion in four months, a pace similarly registered in the official non-manufacturing PMI which fell by 1.7 to 50.3 during the same period.

• WTI crude oil prices fell -$1.67 or 2.3% to settle at $71.03 per barrel while Brent crude slips -$1.59 or 2.09% to settle at $74.61 per barrel. U.S. crude oil stocks increased more than expected as production picked up, while the build in gasoline stocks extended to almost three months, weekly EIA data showed. Weekly crude stocks rose 8.7M barrels to 423.79M, vs forecast of 2.0M bbl build, weekly gasoline stocks up 2.2M bbls vs forecast of 0.5M bbl build and weekly distillate stocks off 5.5M bbls to 118.48M, vs forecast of 1.5M bbl draw. Concern about a new trade war with China raised fears of weaker economic growth. Oil on Tuesday traded in a wide range, with WTI falling at one point by 3% to its lowest since Dec. 31 after China announced tariffs on U.S. imports of oil, LNG and coal.
• Treasury yield prices jumped as yields sunk, with the 10-year down around -10bps to settle around 4.42%, its lowest closing levels of 2025 following mixed economic data earlier. The US Treasury said they will continue incremental increases in tips auction sizes and plan to sell $58B 3-yr notes, $42B 10-yr notes, $25B 30-yr bonds next week. The US dollar tumbled -0.5% to 107.50 for the dollar index (DXY). Sterling edged higher vs. the US dollar ahead of tomorrow Bank of England policy meeting where a 25bps cut is widely expected.

• In Food Delivery & Ride Hailing: UBER reported weaker-than-expected Q4 EPS ($0.23 vs. est. $0.50) and operating income, overshadowing steady bookings growth ($44.2B vs. $43.45B est.) but guided Q1 gross bookings between $42B-$43.5B, with midpoint lower than analysts’ estimate of $43.42B; said sees a 5.5% hit from a strong dollar.

• In Apparel/Luxury Retail: CPRI Q3 adj EPS $0.45 missed the $0.66 estimate saying overall business remained challenged during the quarter, while guided FY26 revs $4.1B vs. est. 44.5B and FY25 revs $4.4B vs. est. $4.51B. AEO was downgraded to Equal Weight at Barclay’s based on ongoing price competitiveness in key categories such as denim and intimates, its belief that VSCO’s course correction could challenge the Aerie brand, and negative sales-to-inventory inflection that occurred in FYQ324. COLM posted Q4 EPS ($1.80 vs. $1.88) and margin miss and weaker than anticipated FY25 guidance (EPS $3.80-$4.15 vs. est. $3.92) sending shares lower.
• In Specialty Retail: toy maker MAT shares jumped after Q4 results and Jefferies upgraded from Hold to Buy, saying after 10 quarters (ex. Barbie) of negative sales growth, MAT reported positive Q4 top-line results and guided 2025 sales up 2%-3%. WRBY was downgraded to Sell at Citigroup as expects a strong Q424 with sales +16.5% vs consensus +15.6% (and above guidance +14-16%) but notes the stock has risen 50% over the past 3 months to a level it believes is overvalued.
• In Restaurants: CMG reported Q4 EPS of $0.25 vs. est. $0.24, comp sales +5.4% below Street at +5.7% while provided disappointing L-MSD comp guidance for 2025 (Street 5.2%). Results were driven by slightly better than expected store-level margins, partially offset by slightly lower than expected comp growth. SBUX shares hit 52-week highs, extending rally post earnings last week.

• In Lodging: HLT was downgraded to Neutral at Mizuho, largely on valuation, and increasing its Price Target to $263 (from $243) on what appears to be a marginally better US RevPAR environment. Notes HLT was up ~37% in ’24 (S&P500 + 23%) and is up another 5% YTD in ’25 (S&P500 +2.66%).
• In Leisure Products: in the pool category, Stifel upgraded HAYW to Buy while updates its 2025 Pool category slightly reducing discretionary unit demand outlook. Stifel is reducing its POOL, SWIM, and HAYW FY25E for its updated remodel/new construction outlooks; reit Buys on SWIM and LESL Sell rating. Stifel says it believes its outlook is fully right sized for incremental category risks with its FY25E representing a resilient performance amid a choppy demand environment enabled by key points of differentiation relative to category peers.
• In Casinos/Online Sports Betting: JMP Securities noted data from online sports betting states highlighted a bad Q424 for operators such as BetMGM and FanDuel (FLUT) combined for ~$625M of downward revision from bad sports outcomes. The bad game outcomes in the NFL were a perfect (negative) storm whereby parlay gaming margins were at the lowest levels since 2019, which JMP would argue were the lowest ever given the infancy of the industry at that point, and parlay mix was at its highest level ever in its database; single-game wagering, traditionally a stable area of the business, was at the lowest level since December 2021.

• In Transports: RXO shares fell as reported wider than expected Q4 loss of -$20M vs. est. loss -$13M while revs were inline at $1.67B for Q4; said brokerage volume increased 10% from the third quarter; ODFL shares rose after Q4 EPS of $1.23 topped ests $1.16 though revs fell 7% to $1.39B (in-line) as the less-than-truckload carrier hauled fewer shipments in the quarter. In railroads (CSX, UNP, NSC), The Association of American Railroads (AAR) today reported U.S. rail traffic for the week ending February 1, 2025. For this week, total U.S. weekly rail traffic was 513,622 carloads and intermodal units, up 4.5% compared with the same week last year. Total carloads for the week ending February 1 were 222,071 carloads, down 0.1% compared with the same week in 2024, while U.S. weekly intermodal volume was 291,551 containers and trailers, up 8.2% compared to 2024.
• In Heavy Duty machinery (CMI, PCAR, ALSN) North American Class 8 truck orders, a key measure in the trucking industry, fell to 24,000 vehicles in January y/y, according to preliminary data. Month on month, it was the lowest in five months and the biggest monthly drop since Dec. 31, 2023 – fell -5% y/y & -30% m/m (class month ACT reported class 8 orders of 36,500).
• In Aerospace & Defense: ERJ said it signed a deal to supply Flexjet with up to 212 jets, a contract valued at up to $7 billion at current list prices. The agreement represents the largest firm order ever for Embraer’s executive aircraft, with firm orders for 182 aircraft and options for another 30, the group said in a statement. LUNR was initiated at Underperform and $16 tgt at Bank America saying frothy valuation based on uncertain revenue growth coupled with a small array of customers and missions leads them to see better opportunities to gain exposure to commercial space. MRCY reported a strong Q2 as revs $223.1M topped the $182.45M estimate with $82M in free cash flow and bookings of $242M. BBAI shares soared after the company said it received a contract from the Department of Defense’s chief digital and artificial intelligence office to develop its automated learning and forecasting machine, called Virtual Anticipation Network.
• In Chemicals/Grains: FMC shares tumbled after posting a weaker FY25 outlook than expected outlook (guides Q1 revs $750-800Mm vs est. $963.68Mm and adj EPS $0.05-0.15 vs est. $0.83). FMC said it is working to lower inventory and introduce higher growth products. BG shares fell after top and bottom line Q4 results missed consensus estimates and guided FY25 $7.75 below consensus $8.81 (shares of ADM fell in reaction).
• In Metals & Mining: gold miners outperformed (AEM, GOLD, CDE, IAG, HL, RGLD, NEM) as gold prices hit record highs above $2,900 an ounce, also seeing strength in silver names (PAAS, SLW).

• In Financial Services: FICO Q1 results missed expectations on lower-than-anticipated mortgage volumes in Scores and muted ARR growth in Software; unexpected headwinds to software revenue and platform ARR of +20% (vs. +30% expectations) were disappointing. HRB shares fell on results as Q2 adj EPS loss (-$1.73) vs. consensus loss (-$1.61); Q2 revs $179.07M which was flat y/y vs. est. $183.4M; reaffirms full year outlook consensus; Total operating expenses of $472.4M increased by $25.8M. In Fintech: FI shares rallied after Q4 results lifted shares on better margins while said expects organic revenue growth of 10% to 12% in 2025.

• DEI reported 4Q24 FFO of $0.38, which beat both consensus and our estimate of $0.37. Notably, management introduced FY25 FFO guidance of $1.42-$1.48, which is largely in line with consensus of $1.46, despite representing a y/y earnings decrease of 15.2% at the midpoint.
• ESS reported slightly better than expected Core FFO in 4Q24, which was negatively impacted by a non-cash A/R charge incurred in 4Q24 ($0.04/share). Excluding the charge, Core FFO beat expectations by over 1% and was above the high end of management’s guidance. Initial 2025 Core FFO guidance missed consensus by over 1%.
• SPG was upgraded from Neutral to Overweight at Piper and raised tgt to $205 PT saying the 2025 outlook outperformance shows the underlying earnings power of the real estate portfolio, without the impact of the retailer business.

• ACET receives fast track designation for ADI-001 for the Treatment of Refractory Systemic Lupus Erythematosus (SLE) with extrarenal involvement.
• AMGN reported better Q4 earnings ($5.31/$9.09B vs. $5.08/$8.87B est.) while noting the FDA ordered a hold on its early obesity candidate, dubbed AMG 513; guides Fy25 adj EPS $20.00-$21.20 vs. consensus $20.82 and sees FY25 revenue $34.3B-$35.7B vs. consensus $34.53B.
• GSK announced a share buyback this morning as it raised its long-term growth forecast, citing progress with its late-stage pipeline, lifting its 2031 sales target to nearly $50 billion.
• NVO reported strong sales growth for its blockbuster obesity and diabetes drugs Wegovy and Ozempic and issued a forecast for full-year 2025 results that topped analysts’ expectations. Novo Nordisk said sales of Wegovy more than doubled to $2,76B in Q4 while Ozempic sales rose 12% from a year earlier, as expected.

• In Medical Suppliers/Services: CAH was upgraded to Buy at Jefferies given new mgmt impressive EPS track record with NT cushion in F2H25 guide; its expectation for a +10-14% LT EPS growth target when they refresh CAH’s LRP (’26+) in June; its belief that multiple expansion will continue as growth expectations are validated.
• In Telehealth: TDOC said it will acquire Catapult Health in an all-cash deal for $65M. Catapult offers an at-home wellness exam, and Teladoc said the acquisition will help it improve its ability to detect health conditions early.

• In Online Retail: U.S. listed online China names in retail weak early (BABA, PDD) after the US Postal Service said they, "will temporarily suspend only international package acceptance of inbound parcels from China and Hong Kong Posts until further notice." The move comes after a suspension following President Trump ending a trade provision this week used by retailers including Temu, Shein, and Amazon to ship low-value packages duty-free.
• In Social Media/Online Services: MTCH shares fell after announcing Spencer Rascoff as new CEO, succeeding Bernard Kim, and offered a softer 2025 revenue outlook for the dating site as sees 2025 revs $3.38B-$3.5B below consensus of $3.5B after its Q1 revenue outlook also missed consensus. SNAP reported better-than-expected Q4 results as revenue came in ~1% above consensus and EBITDA was $16M above the high end of guidance as its DR platform and newer ad units attracted incremental advertisers to the platform (Snap’s advertiser count doubled Y/Y in 4Q) and Snapchat+ subscribers reached 14M (+100% Y/Y).
• In Media: DIS reported Q1 adj EPS $1.76 vs. est. $1.42 as revs rise 4.8% y/y to $24.69B vs. est. $24.57B; Operating income rose 31% from a year earlier to $5.1B; Still sees high-single digit adjusted EPS growth y/y, estimate +8.1% and still sees cash flow from operations about $15B, estimate $15.09B; Subscribers for the company’s flagship streaming video service, Disney+, slipped 1% from the prior quarter to 124.6M; said Q1 Disney+, Hulu and ESPN+ produced an operating profit of $293M in Q1 and profit declined -5% at domestic parks.

• Semiconductors as a whole held up well despite the AMD weakness following results, as higher capex headlines from GOOGL helped boost AI related chip names including NVDA, AVGO, ARM.
• In the European semis, Soitec (SLOIY) cut its sales forecast for 2025, as it now expects 2025 revenue to fall by a high single-digit percentage year-on-year at constant exchange rates and on a comparable business basis, having previously forecast full-year sales to be stable. The firm cites some customer requests asking to put some deliveries on hold due to worsening conditions in the automotive and consumer markets.
• CRUS posted strong F3Q results and provided F4Q guidance, which exceeded expectations as mgmt noted that demand for (iPhone) in F3Q was sustained with content growth from its 22nm audio codec and latest generation boosted amplifiers; posted GM up 143bps Q/Q to 53.5% on favorable mix.
• NXPI was upgraded to Neutral from Sell at Citigroup after the company reported Q4 results slightly above estimates due to strength from China but guided below consensus due to exiting lower-margin products in the Communications segment.
• SLAB upgraded to Buy at Benchmark with $160 tgt saying they believe the co has managed well through a difficult industry correction and the company appears to finally be coming out the other side of the macro pressure.
• STM was downgraded to Market Perform from Outperform at Bernstein and cut tgt to $26 from $33 saying that following the company’s weak Q1 guidance and lack of visibility implied by no 2025 guidance, it considerably revised down its 2025 estimates, coming in below consensus.