Closing Recap

Thursday, January 30, 2025

US equity futures gained overnight after earnings from MSFT, TSLA and META that apparently were good enough not to stoke investor fears about the overall market and economy. Further, though Powell did indicate the Fed does not need to be in a hurry to cut rates, the Neutral rate continues to indicate room for more cuts, which added to early support. Pre-market earnings were overshadowed by weak guidance from UPS and an initial 10-15% pre-market decline in the shares along with softer earnings reactions in AVY, CAT, CI, and DOW. Economic data was a bit of a wash with slightly better initial jobless claims and somewhat softer qtr/qtr advance GDP, though the advance core PCE was in-line. The market’s reaction was muted and futures held early gains into the open. On sentiment, the bull-bear spread in the American Association of Individual Investors (AAII) weekly survey was 7 vs 14 last week with bulls falling from 43.4% to 41% and bears rising from 29.4% to 34%. The Fear and Greed Index remained Neutral at 47/100 versus 46 (Neutral) last week and 27 (Fear) last month. A year ago, the index was 74 (Greed). Early breadth held at around 7:2 in favor of advancers with small caps outperforming both SPY and QQQ. Among S&P Sector ETFs, only Technology was in the red early.

On the data side today, @DataTrekMB notes there is little diversification benefit to owning both the S&P 500 and Nasdaq 100 as the two have a one-year trailing daily returns correlation of 0.94 and 0.92 correlation since 2010. They note the 8 big tech firms represent about half the Nasdaq 100 versus about a third of the S&P. On battleground stock TSLA, @charliebilello highlights the stock gained 63% last year, while revenue grew 1%. On housing, @KobeissiLetter notes US existing home sales dipped to 4.06 million in 2024, hitting the lowest since 1995 when the US population was about 70 million fewer. The affordability crisis continues. On rates, @RBAdvisors notes strength in jobless claims, strong consumption and core import prices going against the Fed, perhaps we should be looking at the possibility the Fed will need to raise rates in 2025.

Heading into the final hour of trading, equities were back near highs after a volatile session. Breadth held at a bit better than 7:2 favoring advancers as small caps continued to outperform both SPY and QQQ. From a sector view, all 11 S&P sector ETFs were higher with Utilities (+1.5%), Real Estate (+0.70%) and Consumer Discretionary (+0.85%) leading outperformers while Energy, Technology and Communications underperformed. Similarly, both growth and value gained with value the outperformer. The Russell 1000 Value was higher by 1.2% versus its Growth counterpart at +0.39%. Stocks pared gains in the final minutes after President Trump said he would announce Canada, Mexico 25% tariffs because of fentanyl, which took a little steam out of major averages but quickly recovered.

• Weekly Jobless Claims fell to 207,000 from 223,000 prior (consensus 220,000) from 223,000 prior week (previous 223,000); the 4-week moving avg fell to 212,500 from 213,500 prior week (previous 213,500); continued claims fell to 1.858M from 1.900M prior week (est. 1.89M).
• December Pending Home sales index -5.5% (consensus unchanged) to 74.2 while December Pending Home sales -5.0% from Dec 2023.

• WTI March crude futures were flattish overnight but gained after better initial jobless claims and in-line advance Core PCE price reports. After a volatile session, the futures settled +$0.11/bbl, or +0.15%, to $72.73. Brent gained $0.29/bbl, or +0.38%, to $76.87. Uncertainty around potential tariffs from the Trump administration and calls for OPEC to raise production likely will continue to generate volatility.

• In Consumer Staples: KO was upgraded to Buy from Hold at Jefferies and raised tgt to $75 saying the business is in great shape as volumes are compounding, pricing has been earned, and the company’s cash flow is about to inflect meaningfully; does note recent strength in the dollar likely revises 2025 numbers lower. In tobacco, MO shares fell on results and guidance as sees FY24 adj EPS $5.22-$5.37 vs. est. $5.35.

• In Homebuilders: PHM Q4 EPS $4.43 vs. est. $3.25 and revs $4.92B, vs. est. $4.64B; average selling price of homes closed in the period was $581,000 compared to $547,000 in the prior year period and announced its board approved a $1.5 billion increase to its share repurchase; MTH with slight Q4 rev beat at $1.6B with orders of 3,304 while midpoint of guidance misses for revs (see FY25 revenue $6.6B-$6.9B, vs. consensus $6.87B); CCS also reported earnings and revenues mostly in-line with expectations. A report from RDFN showed the typical home is taking nearly 2 months to sell. that’s the slowest pace in 5 years.
• In Home Improvement Retail: TSCO misses Q4 net sales ($3.77B vs. $3.78B) and profit estimates (EPS $0.44 vs. est. $0.46) citing tepid demand for its garden equipment and power tools; guided FY25 EPS $2.10-$2.22 vs. ests $2.20, and net sales growth of 5% to 7%, compared with expectations of 4.9% growth. Goldman Sachs upgraded shares of RH to Neutral from Sell (tgt to $374 from $261) saying they see a shift in demand trends despite a depressed housing environment, driven by new products and heavy marketing. The firm downgraded FND to Sell from Neutral with an unchanged price target of $79 citing the well understood expectation that housing turnover will remain muted with mortgage rates at higher levels for the downgrade. Lastly raised tgt for WSM to $224.

• In Casino & Gaming: LVS shares jumped on better earnings, helped as Marina Bay Sands positively surprised the market by delivering a Q4 EBITDA significantly above $500M. Nevada’s Gaming Board also reported December Las Vegas Strip gaming wins down 2.66% to $881.25M compared to last year.
• In Leisure: IMAX set a new first-day record at the Chinese New Year box office in China, generating $12 million (RMB 86M) in total grosses and surpassing its previous record of $11 million (RMB 72M) set in 2021. The premium format captured nearly 5% of the overall market despite representing only 1% of total screens.
• In Marine Products: the sector was higher behind better earnings results from MBUU and ONEW Q2 sales decreased 5% y/y to $200.3M, but was above ests $191.5M and EPS fell -46% y/y to $0.31 but topped the $0.21 estimate; said anticipates FY net sales percentage to be flat to down low-single-digits y/y and adj EBITDA margin of ~10%; ONEW posted rev increase of 3% y/y to $375.8M topping ests $338.6M; BC also posted Q2 EPS and sales beat, though guided Q1 results well below consensus.

• In Brokers/Alt Managers: BX strong results for Q4 as AUM hits record highs and fee-related earnings jumped 76% to a quarterly record of $1.84 billion, but shares declined; RJF reported a Q4 beat and provided commentary on the business backdrop; SF reported a strong Q4 beat with bullish guidance into 2024 and beyond; AMP Q4 EPS $9.36 beat $9.03 est. and while the earnings beat driver was primarily Corporate and taxes, earnings were better in Asset Management and Retirement & Protection Solutions as well.
• In FinTech: MLNK was double downgraded to Underperform from Buy at Bank America and lower its tgt to $18 from $28 as believes it has built an attractive loan origination platform for its target credit union end-market but says the expectations of higher-for-longer interest rates likely will push out its revenue growth recovery story.
• In Consumer Finance/Cards: MA Mastercard shares climb as Q4 revenue, profit top estimates; gross dollar volume, the value of all transactions processed on the company’s platform, rose 12% in Q4; sees 2025 revs to increase in the low double-digits percentage range, compared with the average analyst estimate of 12.7% growth.
• In Staffing/Employment Services: shares of RHI and MAN both decline early after quarterly results/guidance disappoint; RHI Q4 EPS $0.53/$1.38B vs. est. $0.55/$1.39B and Q4 net income $54.29M vs. est. $56.8M; MAN also disappoints as Q4 EPS beat slightly but guided Q1 EPS $0.47-$0.57 vs. est. $0.77 saying they anticipate diluted earnings per share in Q1 will be between $0.47 and $0.57, which includes an estimated unfavorable currency impact of 6 cents and a 36% effective tax rate.
• In Insurance: HRTG said it expects Q4 to be its best earnings quarter of the year; Q4 results include an estimated $57.0M impact from Hurricane Milton in Q4 2024, which includes retained catastrophe losses of $40.0M and a net reinstatement premium of $17.0M; EG was downgraded to MP from OP at BMO Capital applauds EG’s newly appointed CEO in taking meaningful steps to turnaround profitability levels; however, its recent upgrade to outperform was predicated on EG’s biz being less of a “turnaround” than what it learned yesterday.

• BBNX (Beta Bionics) 12M share IPO (up from 10M which was up from 7.5M shares), priced at $17 (range $16 – $17 up from original $14 – $16).
• BFLY 24M share Spot Secondary, priced at $3.15.
• IMNM 19.35M share Spot Secondary, priced at $7.75.
• RHHBY reports in-line FY core profit; FY25 guidance in line.
• SNY reports in-line 4Q24 EPS on slightly better sales.
• TAK CEO Christophe Weber will step down next year, and will be replaced by Julie Kim, currently president of Takeda’s U.S. business unit.
• TECX shares jumped as announced positive interim data from phase 1b trial for TX45, in patients with group 2 pulmonary hypertension in HFpEF.

• In Life Sciences & Tools: TMO shares rallied as Q4 adj EPS $6.10, topped ests $5.94, on better revs of $11.40B, ahead of estimates of $11.28B while issued mixed guidance.

• In Truckers: CHRW reported 4Q adj EPS of $1.21 (up 142%) vs Street estimates of $1.11 as Implementation of the new operating model including disciplined pricing and capacity procurement positively impacted the quarter once again causing adjusted gross profit margin and operating income to slightly beat.
• In Rails: CP ended the year with 4Q core adj combined EPS of C$1.29, beating ests by $0.05 despite work stoppages and adverse weather. Looking ahead to full-year 2025, management is targeting mid-single digit RTM growth (prior consensus=+5%), continued OR improvement, and a 12%-18% y/y increase in core adjusted diluted EPS.
• In Airlines: LUV Q4 profit surpassed estimates, helped by robust travel demand and improved airfares and forecast better-than-expected revenue (RASM), a proxy for pricing power, for Q1 (guides growth 5%-7% vs. est. 2.6%); operating revenue rose 1.6% to $6.93 billion from a year earlier.

• In Chemicals: DOW results miss as Q4 operating EPS 0c vs. est. $0.24 and Q4 revs $10.41B below est. $10.53B but said it will lay off 1,500 employees globally as part of the company’s plan to take additional actions to deliver $1B in cost cuts; announced it had begun reviewing some of its European assets, focusing on its polyurethane business. SHW posts EPS beat and in-line revs but guidance weak as sees FY EPS $11.65-$12.05 vs. est. $12.60.
• In Paper & Packaging: IP reports Q4 revs $4.58B, below ests $4.74B as both Industrial Packaging net sales $3.87B and Global Cellulose Fibers net sales $662M fell below consensus (follows weaker PKG results the day prior).

• In AI: OpenAI is in early talks to raise up to $40 billion in a funding round that would value the ChatGPT maker at $340 billion, according to people familiar with the matter, the WSJ reported this afternoon. SoftBank would lead the round and is in discussions to invest between $15 billion and $25 billion. The Japanese company is helping to assemble investors for the rest of the round, one of the people said. https://tinyurl.com/mr45bwdh
• In Telco/Cable: CMCSA Q4 revenue rose 2.1% y/y to $31.92B, vs. est. $31.62B (EPS beat by 10c), helped by holiday releases, including "Wicked", and unveiled a $15B share buyback program; Comcast lost -139,000 broadband customers in Q4 vs. ests for -91,000 loss (said hurt by hurricanes); said Peacock’s revs rose 27.8% on price hikes.

• In Hardware, Comm Equipment & Services: IBM delivered a solid quarter overall, as results were highlighted by strong outperformance in FCF, GenAI bookings and Red Hat growth as all three came above expectations, building momentum into 2025 highlighted by guidance for $13.5B FCF. JNPR shares fell a third day after Bloomberg reported the Department of Justice sues to stop HPE from buying Juniper.
• In Software: NOW shares tumble as reported another good quarter but cRPO growth of 22% Y/Y, while 50bps above guidance, fell short of typical upside levels due largely to less early renewals than usual (150bps last quarter); guided to cRPO growth of 20.5% Y/Y CC for Q1, in line with the Street. CFLT shares fell after The Information noted SNOW this week discussed an acquisition of Redpanda, a data analysis software startup valued at around $500M in 2023. BL upgraded to Buy from Underperform at Bank America saying the company finally has the right tech and execution strategy to drive growth acceleration. PD was downgraded to Underperform at Bank America saying the catalyst is meaningful rev growth accel, which likely isn’t happening in CY25.
• Note Software names in recent days (MDB, DDOG, NOW, SNOW, ZS, ORCL) have rebounded and outperformed semiconductors on expectations they could benefit from more efficient AI computing given the DeepSeek entry into AI and that a wider mix of software companies could emerge because of the innovation.
• In the EMS Sector: CLS shares soar after results as posted quarterly beat and raise, while said they have been awarded a 1.6 Terabyte switching program with a second Hyperscaler customer. BHE posted stronger than expected Q4 earnings with in-line revenues and provided Q1’25 guidance in line with Street expectations.

• LRCX the 2n semi equipment name in 2 days with positive results (after ASML the day prior), lifting other equipment and chip names; upbeat capex commentary by META and others also helping chip stocks; LRCX posted a solid FQ225 ($4.38B/$0.91 vs Street $4.30B/ $0.88) with slight beats in both Systems and CSBG; NAND was the big surprise (more than doubling QoQ to 2-year highs on upgrade spending). Comments on NAND helped MU.
• MBLY shares tumble as Q4 revs $490M beat the $477.8M estimate but forecast FY25 revenue below Wall Street expectations to $1.69B-$1.81B vs. est. $1.94B, anticipating weaker shipments for its assisted driving technology to China as its automotive customers face stiff competition from local players.
• MXL shares tumbled on results/guidance; Q4 adj EPS loss (-$0.09) vs. est. loss (-$0.13); Q4 revs $92.2M vs. est. $90M; sees Q1 revenue $85M-$105M vs. consensus $93.23M and sees Q1 adjusted gross margin 57.5%-60.5%.
• TER reported slight beats for Q4 results but guided Q1 revs $660M-$700M as midpoint misses the $694M estimate and sees Q1 adj EPS $0.58-$0.68 vs. est. $0.63.
• WDC reported lower than expected earnings for Q2 and guided well below investor expectations for the March quarter (Q3 revs $3.75-3.95B vs est. $3.996B and adj EPS $0.90-1.20 vs est. $1.47); lower HDD and flash sales are expected in the March quarter. NAND pricing declines are expected to moderate in the March quarter
• WOLF reported results that were slightly ahead of expectations for the December quarter. Overall, the company is going through a transition as it is trying to realign its facilities, including its start-up and utilization costs, to a new lower level of revenues.