Closing Recap

Tuesday, March 04, 2025

Taco Tuesday no more. Welcome to Tariff Tuesday and the markets are not thrilled if yesterday’s advance sell-off was any indication. US equity futures rolled again into the pre-market session, pulling oil futures lower as tariffs took effect and retaliatory measures from China and Canada began to hit the tape. Concerns about domestic growth were already evident last week when the Atlanta Fed GDPNow-model shifted from an expected Q1 seasonally adjusted annual rate of growth of 2.3% to a -1.5% decline, then to a -2.8% decline in a span of only a few days. It makes sense, then, that today’s Fear and Greed Index dipped to 16/100 (Extreme Fear) versus 22 (Extreme Fear) last week and 38 (Fear) last month. By mid-morning, breadth favored decliners by just over 4:1 as small caps underperformed in a generally red day with IWM (-2.34%) versus SPY (-1.72%) and QQQ (-1.37%). All 11 S&P sector ETFs were lower with Consumer Staples, Utilities and Health Care outperforming and Industrials (-2.33%), Consumer Discretionary (-2.62%) and Financials (-3.83%) leading the underperformers.

In data today, the implied probability of a Fed cut in May is now about 50/50. The March meeting probabilities still sit at over 90% no change. On volatility and the market move, @bespokeinvest noted the Nasdaq is down -10% from its record closing high on December 16th and that there have only been four days in the past year with a closing VIX level higher than its current level. On trade deficits (on tariff day), @charliebilello noted the US Trade Deficit in Goods over the past twelve months was the largest in history. With more on the Fear and Greed Index, @KobeissiLetter noted the index has fallen to the lowest since the 2022 bear market. Lastly, @RyanDetrick attempted to be a voice of reason noting we are in the third year of a bull market, and it is rare for the bull to end at this point but it is normal to see chop and sideways action.

Markets remained choppy heading into the final hour of trading but were well off the early lows with QQQ even going green before a late day roll on Taiwan tariff headlines. Breadth was about 3:1 in favor of decliners as small caps (IWM) lagged versus QQQ , while the S&P was volatile late, ending the day lower falling about 100-points in the final 30-minutes. In S&P sector ETFs, Technology was the only sector in positive territory late while Industrials (-1.35%), Consumer Staples (-1.1%) and Financials (-3%) led the laggards. As would be expected with QQQ outperforming, the Russell 1000 Growth outperformed its Value counterpart into late trading with RLG +0.95% versus RLV -0.94%. Stay tuned for more tariff and tariff retaliation headlines as near-term market catalysts, though perhaps taking some of the uncertainty out of the equation is a good thing. Note tonight President Trump will present an “unofficial” State of the Union address in Washington, recapping the steps the administration has executed in the first 6 weeks in office.

• WTI April crude futures slid overnight on a multitude of factors. OPEC+ appeared prepared to carry through production increases to add 2.2Mm bpd by 2026 and hitting Trump tariffs along with retaliatory tariffs by Canada, Mexico and China pressured already-fragile sentiment on economic growth. The result was incremental concern about 2H demand in an environment already facing above-expected supply. Futures finished the day -$0.11/bbl, or -0.16%, at $68.26. Brent slipped a bit more than WTI to settle -$0.58/bbl, or -0.81%, at $71.04. U.S. natural gas futures jumped about 9% to a 26-month high on Tuesday on record flows to liquefied natural gas export plants; New York Mercantile Exchange rose 22.8 cents, or 5.5%, to settle at $4.350 per million British thermal units.
• The US dollar extended its losses to reach a 12-week low as concerns about a weaker U.S. economic growth outlook weigh. Growth worries are stemming from the Trump administration’s tariffs and broader policies as well as recently soft U.S. economic data. Markets are also underestimating the impact of tariffs elsewhere and U.S. import levies should remain a net dollar positive. Bitcoin prices rallied this afternoon back above $88,00 after lows around $81,500 this morning and below $80,000 last Friday.  

• In Auto retailers: AZO reported its 4^th straight quarterly revenue miss at $3.952B vs. est. $3.982B (but above $3.859B prior) while comp sales grew 0.5%, or 2.9% on a constant currency basis below ests for growth of 1.9%.
• In Auto Suppliers: ADNT was downgraded to Underperform from Neutral at Bank America (tgt to $18 from $24) and MGA downgraded to Neutral from Buy (tgt to $48 from $52) after lowering North American auto production estimate to 16.1M from 16.7M to reflect plant downtime and a material increase in Chinese imports to Mexico.

• In Electronics Retailers: BBY Q4 EPS of $2.58 topped the consensus $2.40 on better revs of $13.95B vs. est. $13.68B (but down from $14.65B a year prior); Domestic revenue fell to $12.72B from $13.41B y/y, while international revenue decreased slightly; guided 2026 EPS ests to $6.20$6.60 vs. est. $6.58.
• In Footwear & Apparel: ONON reported Q4 earnings and revenue that beat analysts’ estimates; Q4 adjusted EPS CHF 0.33 vs. (CHF 0.05) last year; Q4 revenue CHF 606.6M vs. CHF 447.1M y/y; sees FY25 adjusted EBITDA margin 17%-17.5%; annual forecasts for sales and adjusted Ebitda margin were also generally in line with projections.
• In Department Stores: JWN reported Q4 adj EPS $1.10 vs. est. $0.92 on revs $4.32B (in-line with ests) and said it is not providing Fiscal 2025 financial outlook.

• In Online Travel: SABR was upgraded to Buy from neutral at Bank America on stronger top-line growth and easing near term and long-term risks; said strong top-line growth supported by new win implementations as well as subsiding disintermediation risks.

• In Building Products: QXO said it had extended the deadline of its tender offer to buy BECN by a week to March 10. QXO made a bid in January to buy Beacon’s outstanding shares for $124.25 per share. Beacon rejected the offer saying it significantly undervalued the company.
• In Airlines: JBLU (tgt to $7 from $9) and ULCC (tgt to $8 from $12) were both downgraded to Hold from Buy at Deutsche Bank saying they are exposed to potential pockets of weakness in domestic demand.
• In Multi Industry/Industrials: HON announced a roughly $2.2 billion deal for pump-and-compressor maker Sundyne, extending the company’s brisk pace of dealmaking. NDSN was upgraded to Overweight from Sector Weight with $260 PT at Keybanc noting they have been waiting for a better entry point, and with orders accelerating across the business (especially Electronics), it believes now is an opportune time to step in.
• In Aerospace & Defense: ASTS Q4 results came in mostly in-line with management Q424 guidance (~$30-35M non-GAAP opex, ~$100M CAPEX) with AST heavier on opex, but lighter on CAPEX numbers. Overall, AST deploying ~50-60 satellites in 2025-2026 screens as higher than Cantor’s expectations of ~30 satellites.
• In Chemicals: SMG was upgraded from Hold to Buy at Stifel but lower PT $78 to $70 following a -28% pullback from the late-January peak (S&P 500 -2.7%) pushing the shares to just under 15x P/FY26E EPS, a discount to consumer staples peers, with SMG boasting a 4.7% dividend yield.

• In Exchanges: CME reported its February 2025 market statistics set a new monthly average daily volume (ADV) record of 33.1 million contracts, an increase of 12% year-over-year. In addition, its deeply liquid interest rate complex reached a monthly ADV record of 19.2 million contracts, driven by record monthly U.S. Treasury futures and options ADV of 13 million contracts and a 15% increase in SOFR futures volume.

• AMRX announced that the FDA has accepted for review its Biologics Licensing Application for two proposed denosumab biosimilars referencing Prolia and XGEVA.
• CAPR said the U.S. FDA has granted Priority Review to its drug to treat a heart condition associated with Duchenne muscular dystrophy (DMD).
• EBS shares dropped following a y/y decline in Q4 revs to $194.7M from $276.6M a year ago, sees Q1 revs $200M-$240M (est. $279M) and guides FY25 revenue $750M-$850M, below consensus $1.13B.
• IRWD files to delay annual 10K report; expects to report internal controls material weakness.

• In Drug Retail/Facilities: WBA is nearing an agreement with private equity company Sycamore Partners to go private in a $10B deal, The Wall Street Journal reported and could see Sycamore pay $11.30-$11.40 per share, could be announced as soon as Thursday https://tinyurl.com/55h6esua
• In Labs & Diagnostics: Citigroup with several ratings changes as they upgraded CRL from Sell to Neutral (tgt to $175 from $155) as thinks headwinds from the large pharma customer group (~30% of revenues) with regard to IRA caution / pipeline restructuring are well understood by investors; they downgraded DGX from Buy to Neutral w/ $185 PT saying margin headwinds tied to the LifeLabs and the level of dilution related to Haystack launch will pressure margins and earnings growth. Citi also upgraded LH from Neutral to Buy (tgt to $300 from $250) saying in the Labs industry, utilization rates have been running high post-pandemic with no signs of slowing down and believe LH is well positioned to capitalize on that through its core diagnostics business.

• In Media: ROKU was upgraded to Neutral from Sell at MoffettNathanson with a $70 price target founded in the belief that Roku’s results will be strong and better than expected in the near term, and it is hard to fight momentum… for now. Moffett believes 2025 is setting up as a beat-and-raise story for Roku.
• In Online Services: GCT reported mixed Q4 results and provided guidance that was below expectations as Q1 revenue was guided to $250M-$265M, below the $281.4M consensus estimate, implying a significant deceleration in the growth rate and results below expectation.

• GTLB reported Q4 beats on revenue, operating income, and EPS driven by GitLab Ultimate adoption and improved cost efficiencies and issued its full-year FY26 guidance, projecting 24% revenue growth and 44% operating income growth, in line with FactSet consensus, but guided EPS $0.03 lower y/y at the midpoint and $0.10 below ests.
• SE shares outperformed following quarterly results and guidance.
• SOUN files for non-timely 10K with SEC; said material weakness continues to exist.