Closing Recap

Monday, January 06, 2025

After slipping on the first day of the New Year (1/2) and dropping in the final week of December, both the S&P 500 and Nasdaq have record back-to-back daily gains, though stocks did pull back this afternoon, ending just off the lows on Tuesday with sharp declines in defensive sectors (utilities, REITs, consumer staples all falling over 1%). Big tech saw another spike on Monday after leading markets higher Friday, boosted by semiconductor chips and AI related names ahead of CES trade show presentations this week, better December numbers from Foxconn, which reported higher than expected revenue growth overnight and after news late Friday that MSFT will spend $80B on AI data centers this year. Overall market sentiment positive early after the Washington Post reported overnight that President-elect Donald Trump’s aides are exploring tariff plans that would be applied to every country but only cover critical imports – a shift from his plans during the 2024 presidential campaign (though Trump later denied the story). That news helped boost sectors such as autos, metals, solar and others that are seen hurting from aggressive tariff plans initially. Next up, attention turns to Fed speakers, FOMC December meeting minutes, several job-related economic data (JOLTs 1/7, ADP 1/8 and Nonfarm 1/10) and Wall Street conferences the next two weeks along with the start of earnings season.

• U.S. Nov factory orders fell -0.4% vs. consensus -0.3% and vs Oct +0.5%; Nov factory orders ex-transportation +0.2% vs Oct +0.2%, factory orders ex-defense unchanged vs Oct +0.5%, nondurables orders +0.4% vs Oct +0.2%, total manufacturing inventories +0.3% vs Oct -0.1%. U.S. Nov nondefense cap orders ex-aircraft revised to +0.4% from +0.7%; Nov shipments revised to +0.3% from +0.5%
• The December Caixin China Services PMI rose to 52.2 from 51.5 in November and came in ahead of the 51.4 consensus, moving further into expansion driven by stronger domestic demand and a pickup in new business inflows, though export activity softened

• February gold fell -$7.30 to settle at $2,647.40 an ounce as U.S. Treasury yields edged up, while investors’ attention turned to economic data for clues on the Federal Reserve’s interest rate trajectory in 2025. Markets are also looking to the release of job openings data on Tuesday, ADP employment numbers and the minutes from the Fed’s most recent policy meeting on Wednesday for further insights.

• Meanwhile, after the U.S. dollar index (DXY) advanced for the 13th week in the last 14 last Friday (surging to 2-year highs since the Fed cut rates by 50-bps last September), the buck declined on Monday, falling over -0.6% to 108.32 (off highs above 109), but off overnight lows of 107.74 on media reports of a less aggressive tariff stance from incoming president Donald Trump. Bitcoin prices jumped around 4% back above $102,000.

• In Consumer Staples: sector was generally weaker as investors focused on high growth sectors on Monday vs defensive sectors (utilities, staples, REITs all lagged today); Piper issued a 2025 Beauty and Wellness 2025 outlook as they named CHD, IPAR and SBH as 2025 top ideas, upgraded KVUE to OW, and downgraded both EWCZ and PRGO to Neutral. Heading into 2025, they say they feel better about KVUE’s margin trajectory.

• In Ride Hailing/Food Delivery: UBER shares rose after announces $1.5B accelerated share buyback program; LYFT was upgraded to Buy with $20 tgt at Benchmark and calls it one of their top ideas for 2025. While Benchmark understands that both Uber and Lyft are likely to face ongoing pressure from Tesla and Waymo headlines, it believes Lyft’s decision to reduce surge pricing while sticking with their Price Lock platform expansion should drive upside to rider metrics and thinks Lyft is just getting started with their expansion via partnerships.
• In Pool & Leisure: Keybanc downgraded PNR to Sector Weight from OW saying transformation benefits now fully reflected in the stock: while also notes concerns around a potential residential malaise, it feels the stock now fully appreciates the runway on transformation initiatives following its recent outperformance. Also, Keybanc downgraded HAYW to Sector Weight saying with no clear line of sight to Pool improvement, the firm sees 2025 as another transition year.
• In Gaming & Leisure: Stifel names WYNN, NCLH, IGT, FUN as top ideas in Gaming/Leisure for 2025 as see an attractive risk/reward setup for Macau operators as valuations remain depressed and believes investor sentiment could slowly be improving. Said large-cap cruise operators should continue to benefit from strong demand and bookings, but valuation/comps could limit share appreciation. Says the LV/regional gaming fundamental outlook remains uninspiring and sees downside risk to consensus ests. Says OSB/iCasino fundamentals are attractive for scaled incumbents and iCasino-led strategies, while worsening state budget deficits may re-catalyze expansion.

• In Solar: SEDG shares jumped after announced job and cost cuts while the solar industry rallied on reports in the Washington Post that President-elect Donald Trump is considering tariff plans that would be applied to every country, but would cover only critical imports, a shift from his plans during the 2024 presidential campaign
• In Oil drilling (NE, RIG), President Joe Biden is indefinitely blocking offshore oil and gas development in more than 625 million acres of US coastal waters, warning that drilling there is simply “not worth the risks” and “unnecessary” to meet the nation’s energy needs. Biden said the move was aligned with both his climate change agenda and his goal to conserve 30% of U.S. lands and waters by 2030

• Financial Services: PAYX is in advanced talks to acquire smaller payroll processing rival PYCR, people with knowledge of the matter told Bloomberg. Talks may still fall apart, but if they are successful a deal may be announced as soon as this week, said the sources https://tinyurl.com/sudpaesu ; TOST was initiated Outperform and $45 PT at BMO Capital saying they believe the co will be a long-term winner in the U.S. restaurant technology/payments market, benefiting from a comprehensive product offering and highly efficient go-to-market strategy that underpins attractive/improving unit economics and ARPU growth.
• In Brokers, Asset Managers: SF announced it has signed a definitive agreement to acquire Bryan, Garnier & Co., a leading independent full-service investment bank focused on European technology and healthcare companies. PIPR was downgraded from Buy to Neutral at Goldman Sachs. At UBS, the firm upgraded RJF to Buy because the company’s differentiated advisor platform has enabled superior recruitment and retention; upgraded LPLA to Buy (tgt to $390 from $280) as anticipates an acceleration of client asset and cash growth over the coming quarters amid a more bullish environment for WM firms and downgraded AMP to Neutral as its re-rating thesis has played out and the stock now trades in line with publicly traded WM peers on FY2026 estimates.
• In Insurance: Barclays upgraded both CRBG to Overweight and downgraded RNR to Underweight in the Insurance sector. Heading into 2025, remain more optimistic on the life insurers as sees improving FCF, benefits from higher interest rates, sizeable excess capital positions, strong group benefits earnings, and potential for further reinsurance and M&A transactions. n the Property & Casualty side of insurance has a Neutral industry view with favored names HIG, CB and RYAN.
• In Consumer Finance/Lending: COF and DFS both upgraded to Overweight from EW and SYF upgraded to Overweight in the Consumer Lender Space at Barclay’s while in Mortgage Finance, the firm downgraded ESNT and NMIH to Equal weight (from OW) and maintains Overweight on PFSI and COOP. Heading into 2025, the firm said they favor consumer finance stocks with positive catalysts that have not been fully priced in and could drive additional upside as upgrade COF, DFS, SYF. For ESNT , Barclay’s says mortgage credit should remain benign, but credit normalization has begun more meaningfully as vintages continue to season, which means the default rate could accelerate in upcoming quarters.
• In Crypto: Bitcoin prices jumped over 4% topping $102,000; CORZ said in December earned 291 self-mined bitcoins for a total of 6,595 bitcoin year-to-date and 974 in the fourth quarter; our customers earned an estimated 18 bitcoin at our data centers in December; MSTR buys another 1,070 bitcoins for $101M, at an average price of $94,004 per bitcoin, bringing holdings to 447,470 BTC.

• In Medtech: NARI shares spiked late day after Reuters reported SYK is in advanced talks to acquire Inari Medical, which makes devices that treat patients with venous diseases, and if the talks are successful, a deal could be announced as soon as this week. https://tinyurl.com/vv2k3wuf
• In Lab sector: DGX was upgraded from Market Perform to Outperform at Leerink with $174 PT saying their view of the co has generally been positive, as the trend towards steady volumes, stable pricing, improved mix (more tests per visit), and a solid M&A pipeline have all driven positive operating results.
• In Dental sector: HSIC was double upgraded to Buy from Underperform at Bank America and PT raised to $84 from $69 saying they think HSIC stands out as a best-of breed dental asset strategically positioned to compound EPS at healthy rates, which the company accomplished during the entire decade before COVID. ALGN was upgraded to Outperform at Leerink and raised tgt to $280 from $235 saying for what remains a clear market leader with a continually broadening moat, Leerink sees opportunities into 2025 for upside given signs of improving consumer sentiment, easing comps, and continued equipment traction with Lumina.

• In Transports: AAL was upgraded to Buy at Jefferies in airlines with 2025 EPS of $2.55, 14% above Street from higher TRASMs (2.3% vs 1.8%) despite higher CASM-ex (3.5% vs 3.3%) and said the industry backdrop supports LSD Mainline TRASMs (Cons ~2% for DAL) w/ AAL to outperform from Distribution recapture of the $1.5BB from ’24.
• In Heavy Duty machinery (CMI, PCAR, ALSN), Citigroup noted ACT reported December NA prelim class 8 net orders of 36.5k; seasonally adjusted net orders were ~29.7k, down ~5.1k units MoM and down (~10%) y/y. Prelim class 5-7 net orders came in at 16.8k; seasonally adjusted net orders were ~15.5k, down ~1.4k units MoM and down (~31%) y/y.

• Vertical Research with a few ratings changes as GD was downgraded from Buy to Hold w/ $290 PT (from $352) saying thinks the company is facing challenges in Marine, Aerospace and Technologies, and even Combat could face sentiment headwinds when the war in Ukraine concludes. TXT was upgraded from Hold to Buy w/ $91 PT noting the stock had a tough 2024 and closed the year down 5% (-28% vs the S&P500). While the company is facing challenges in its Industrials division, this makes up only 14% 2025E profits and it historically has been a major motivator for investors to buy or sell the stock.
• ASTS announced an agreement for long-term access to up to 45 MHz of lower mid-band spectrum in the United States for direct-to-device satellite applications.
• KTOS said it has been awarded a five-year OTA contract for MACH-TB 2.0 for the total value of $1.45 billion.
• LHX completes sale of specialized materials business to BWXT for approximately $100M
• PLTR was initiated at Underweight and $60 tgt saying Palantir’s commercial traction and AIP product cycle drove the multiple re-rating, while the government segment and opex discipline drove upside to estimates. While acknowledging strong execution and momentum, success more than priced in at this point.

• In Metals & Mining: some metals (STLD, CLF, FCX) stocks rise after the Washington Post reported that President-elect Donald Trump’s transition team is considering a tariff plan that is narrower than previously expected. in gold miners, GOLD remains restricted from shipping gold from its Loulo-Gounkoto mining complex in Mali. In addition, an interim attachment order has now been issued against the existing gold stock on site which further prevents its export and disrupts normal operations. Barrick believes the interim attachment order is unwarranted and is in contravention of the agreed dispute resolution mechanisms. In Steel sector, U.S. Steel (X) and Nippon Steel (NPSCY) said they had filed two lawsuits after U.S. President Joe Biden blocked a $14.9 billion buyout of the American steelmaker by the Japanese firm.

• In Media: DIS to combine its Hulu + Live TV business with FUBO and become majority owner of the resulting company. The combined business will operate under the Fubo publicly traded company name (FUBO) led by the existing Fubo mgmt team; Fubo and Hulu + Live TV will continue to be available to consumers as separate offerings. NFLX shares fell for a 7^th straight day after hitting highs of $935.85 on 12/24.

• Piper said 2025 Top Ideas to Own in software are MSFT, CRM, SNOW; the firm said the most controversial stocks with the most upside potential are MDB, ADBE and made several ratings changes including: 1) AMPL to Overweight saying new leadership additions and acquisitions could begin to bear fruit in 2025; 2) ASAN was upgrade to Overweight saying stabilization, cost discipline, and the AI Studio product cycle could spark a recovery; while 3) downgraded APPF to Neutral saying the vertical specialist in property management appears fairly valued with few near-term catalysts; 4) downgraded ZI to Underweight saying its turnaround may take longer on aggressive competitive pricing that could become a spoiler and cut 5) BL to Underweight saying the recovery prospects back to mid-teens growth could remain challenging

• Semiconductors as a group (SOX) outperformed, rising as much as 4% earlier, helped after Foxconn reported faster-than-expected revenue growth on continuing demand for AI infrastructure. Foxconn beats estimate with record Q4 revenue on AI demand; Q4 revenue surges 15.2% to $64.7B; revenue for consumer electronics division was flat; says Q1 should show strong growth yr/yr. Investors also await chip updates at CES trade show.
• In Semi equipment, Citigroup upgraded NVMI, VECO, MKSI, AEIS and FORM to Buy saying after a sharp 30%+ correction in 2H24, the firm believes the group is largely discounting a down 2025 WFE year driven by lower domestic China + weak consumer memory demand offset partially by continued AI spend tailwinds. Citi expects key stock performance indicators like estimate revisions and memory pricing momentum to trough in 1H25.