Closing Recap

Wednesday, February 12, 2025

US equity futures faded overnight but recovered into the CPI data with S&P futures flattish and Nasdaq futures holding a small gain. Ahead of the data, Fed rate change probabilities saw 95% probability of no change in March, 76% no change in May and 51% no change in June. But a hotter-than-expected CPI release immediately rolled the futures to down about 1% on both S&P and Nasdaq. Implied probabilities on Fed action moved to 87% and 65% for no change in May and June, respectively, and the implied March 2026 rate bumped back above 4%. On a sentiment basis, today’s Fear & Greed Index registered 42/100 (Fear) down from 46 (Neutral) yesterday but up from last week’s 40 (Fear) and last month’s 26 (Fear). There is plenty of domestic and geopolitical uncertainty and earnings/guidance volatility going around right now and they can’t be helping. Late morning breadth favored decliners by about 3:1 as Smallcaps underperformed with pretty much everything in the red IWM down as much as -1.5% versus SPY (-1%) and QQQ (-0.52%). Sector-wise, all 11 S&P sector ETFs were declining with Consumer Staples, Health Care and Consumer Discretionary outperforming versus Industrials, Financials and Real Estate pacing the underperformers.

In noteworthy datapoints today, at midday META was back in the green despite the hot CPI as it shoots for an 18th consecutive up day. On CPI, @bespokeinvest noted Core CPI has been 3.2% or 3.3% yr/yr for the past eight months, but Powell’s recent comments would indicate this report is unlikely to shift Fed policy. Meanwhile, @charliebillelo pointed out some of the big CPI price increases over the past four years, including food away from home +25%, electricity +29.6%, gasoline +34.9%, transportation +43.5%, auto insurance +60.9%, home prices +39.4% and, yes, eggs +238%. Last point on CPI, @KobeissiLetter noted the +0.5% one-month jump in CPI was the largest since August 2023. Finally, @RyanDetrick noted the JPM quant and derivatives team research indicates retail sentiment is the highest on record.

Heading into the final hour of trading, stocks were mixed but well-off early lows. Breadth had improved from about 3:1 in favor of decliners to just under 2:1, still favoring decliners, as small caps continued to underperform with IWM -0.8% versus SPY -0.24% and QQQ +0.15%. On the sector front, both Consumer Discretionary (XLY, +0.34%) and Communications (XLC, +0.17%) had moved into the green while the other 9 remained lower with Real Estate (XLRE, -0.67%) and Energy (XLE, -2.07%) the largest laggards. On a growth versus value basis, both remained in the red with growth the outperformer as the Russell 1000 Growth dipped only 0.02% versus its Value counterpart at -0.49%.

• WTI March crude futures slipped overnight and held around the $72.53 support pivot following the morning CPI release. The futures failed to hold that level and continued to slide before settling down $1.95/bbl, or -2.66%, to $71.37. Traders attributed the move to a third consecutive week of higher crude inventories; expectations Fed will keep rates at current levels for longer after today’s CPI and to optimism around the Ukraine war after Trump held calls with Putin and Zelensky. Brent finished lower by $1.82/bbl, or -2.36%, to $75.18.

• In Food: KHC forecasts 2025 adj EPS $2.63-$2.74 below consensus est. $3.05 while reported quarterly sales fell 4.1% from a year ago to $6.6B and comp sales fell (-3.1%) as its prices crept higher; said expects organic sales to be flat to down 2.5% versus the year prior.
• In Food Apparel: ONON downgraded to Neutral from Buy at Goldman Sachs saying they expect On’s brand momentum to remain robust over the medium term, noting that recent data points reinforce this view, but says share valuation is full

• In Casinos/Lodging: RRR reported $202M of EBITDA in Q4, beating expectations by 2% as total EBITDA increased 7% in 2024, supported by the 16% return on invested capital (as of Q4) at Durango; RRR beat revenue expectations by 1%, led by strong growth from casinos (+8% YoY) and F&B (+8% YoY).

• In Utilities: EXC said it plans to invest $38 billion in capital expenditures over the next four years, 10% higher than its previous plan after reporting Q4 EPS $0.64 above the $0.59 estimate and raised 2025 EPS to $2.64-$2.74 above consensus of $2.63 as expects to benefit from higher rates for electricity and natural gas. Dominion (D) Q4 EPS of $0.58 beats the $0.56 estimate while reaffirms l-t operating EPS growth rate guidance and narrows 2025 operating EPS range to $3.28-$3.52 per share. ZWS announced 7.75M shares sold by Ice Mountain at $35, 5.1% discount to last sale; the Co agreed to repurchase ~1.6M shares, approx $55M worth, from the underwriters.
• In Industrials: ALSN posted better Q4 results, but guidance weighed as sees FY25 revenue $3.2B-$3.3B vs. consensus $3.38B as mgmt called out raw material costs and lower volume decremental as margin drags in 2025

• In Financial Services: FRSH reported better-than-expected 4Q24 results, with EPS of $0.14 (consensus $0.10) on revenue of $195M (consensus $190M), up 22% y/y and billings of $222M (consensus $211M), up 23% y/y (including a six-point benefit from the acquisition of Device42) up from 19% last quarter.
• In Insurance: AIG reported EPS that beat estimates on underlying loss ratios and guide 10% plus Core ROE in 2025 despite the $500M expected impact from wildfires. MCY was upgraded to Strong Buy from Outperform at Raymond James and raise tgt to $80 from $70 saying while there is still uncertainty around the potential total loss related to the wildfires, believes MCY has a potential subrogation counterclaim as a partial offset to the losses associated with the Eaton Fire; also notes Q424 results reflect some of the strongest underlying results in over the last 10 years, which should continue as long as auto frequency/severity loss trends remain relatively stable. In auto insurance names (ALL, PGR), @charliebilello notes “Auto insurance rates in the US have increased by 55% over the past 3 years. That’s the biggest 3-year spike since 1975-78”.

• BIIB Q4 EPS and revenue above expectations, though mgmt expects full year 2025 total revenue to decline by a mid-single digit vs ’24. Skyclarys revenue below expectations $102M vs $112M est.; Q4 MS revenue $1.07B vs $1.02B est. Sees FY adjusted EPS $15.25 to $16.25 below estimate $16.16.
• CRSP was upgraded to Hold from Sell at TD Cowen saying they continue to be cautious on the Casgevy launch but believe there is significantly less downside to the shares now compared to when it downgraded Crispr to Sell.
• EXEL preannounced 4Q24 revenue in line with expectations and outlined a catalyst-rich 2025 focused on zanzalintinib pivotal clinical trial updates.
• GILD delivered a Q4 beat and gave 2025 EPS guidance that was ahead of consensus; total revenue of $7.6B (+6% YoY; vs. consensus of $7.2B and non-GAAP EPS of $1.90 beats $1.74 est.; higher HIV and oncology sales were offset by lower Veklury revenue and higher OpEx. Initial FY25 total product sales guidance brackets estimates.
• RPRX announced a strong Q4 with total portfolio receipts ($742M v. $696M Visible Alpha consensus; +$46M) above consensus and also said it has entered into an agreement with BIIB to provide research and development (R&D) funding of up to $250M for litifilimab
• XLO enters into collaboration and option agreement with ABBV to develop cancer immunotherapies, sending shares higher. Under the terms of the deal, XLO to receive $52 million in upfront payment and will be eligible to receive up to about $2.1 billion in milestone payments.

• In Medical Equipment: STAA shares tumbled after Q4 sales of $48.95M were well below consensus of $77.2M and said plans to implement cost cuts this year in light of a lower revenue forecast, does not expect to meet its previously set sales target for 2026. WAT shares slipped after guiding Q1 EPS between $2.17-$2.25 per share, below analysts’ estimate of $2.42 as sees an around 7% hit to profit from a stronger dollar in the first quarter and about 4% for the year; guidance for year brackets consensus. EW delivered Q4’24 sales/EPS results above consensus, beating them by 2% and 7%, respectively as Q4 TAVR sales beat expectations by 2%.

• In Software: BL shares fell after reporting mixed Q424 results, with non-GAAP EPS of $0.47 (consensus $0.50) and operating margins of 18.1% (consensus 18.5%), while subscription revenue of $161.0M (consensus $160.2M), up 9% y/ y, a deceleration from 11% in Q3 and guidance was disappointing; CFLT shares outperform after delivered strong Q424 results in the face of investor concerns about SNOW possibly acquiring Redpanda, with better-than-expected EPS/revs; delivered Q4 results that exceeded expectations helped by stabilizing consumption trends, use case expansion, and DSP adoption
• In Video games: Bank America sees mixed January 3P data not supportive of a material rebound, mobile IAP rev broadly lower M/M across gaming coverage. The firm said for TTWO, growth likely depends on new launches, Match Factory stable; for EA, portfolio more concentrated around core Ips. For APP, software remains sole focus, 1P gaming decline may reflect UA discipline; and for PLTK, Q4 ests unanchored, CY24 Guide in focus.
• In AI space: TEM downgraded from Outperform to Market Perform at William Blair noting shares are up 92% from IPO pricing at $37 per share, up 211% from the late-June lows, but actually finished 2024 down 9% from IPO pricing. More recently however, shares have surged yet again, up a whopping 111% year-to-date.
• Data Center suppliers’ names fall on VRT guidance as the maker of cooling and power equipment for data centers-maintained guidance it provided in November for adjusted earnings of $3.50-$3.60 a share in 2025 and raised its sales outlook to about $9.1B-$9.28B (vs. est. $9.25B); shares of DELL, ETN were also weaker.
• In IT Services/Equipment: TEL said it would buy Richards Manufacturing Co from funds managed by Oaktree Capital Management and members of the Bier family for about $2.3 billion in cash, aiming to expand in the energy market. TDC shares fall on mixed Q4 results as EPS beat by $0.10 but revs of $409Mm below est. $414.94Mm, and issues Q1 and FY EPS above views; sees Q1 adj EPS $0.55-0.59 vs est. $0.63 and EPS $2.15-2.25 vs est. $2.46.

• INTC shares rise for a third day, extending gains after Vice President JD Vance said at the AI summit in Paris on Tuesday that President Donald Trump’s administration would ensure that the most powerful artificial intelligence systems would be built in the U.S.
• NXPI was upgraded to Overweight at Morgan Stanley saying NXP should outgrow Auto semis in 2025, they see structural improvements to the business and said its AlphaWise analysis of MCU shipments suggest that shipments didn’t further deteriorate from Nov. to Dec.
• SMCI adjusted earnings and revenue outlook for the period came in below analysts’ expectations, but said it expects $40 billion in revenue for fiscal 2026, significantly above the consensus of $29.2 billion.