Closing Recap

Wednesday, May 21, 2025

US equity futures followed yesterday’s decline with more losses overnight. A spike in UK inflation and concerns over a potential Israeli strike on Iranian nuclear facilities contributed to the early decline. With no major headlines or pre-market economic news to sway investors, the modest decline persisted into regular trading. Early weakness in pre-market consumer earnings names TGT, TJX and VFC didn’t help. Sentiment-wise, the Fear and Greed Index remained in the Greed range at 68/100 versus 70 (Greed) last week, but 21 (Extreme Fear) last month. Meanwhile, the sell-side upgrade/downgrade ratio stood at 40.9% month-to-date versus April’s 47.7% but has been improving each week of May sequentially as analysts attempt to adjust to tariff implications. Mid-morning breadth favored decliners by almost 3:1 as small caps underperformed in a broad decline with IWM (-1.15%) versus SPY (-0.58%) and QQQ (-0.29%). On a sector basis, Communications, Technology and Consumer Staples were early outperformers among S&P sector ETFs, while Energy, Real Estate and Health Care led the underperformers with only Communications in the green.

In noteworthy data today, while TJX, TGT and VFC were weaker on earnings this morning, LOW extended its string of EPS beats to 24 according to @bespokeinvest. Yesterday, HD broke it’s consecutive beat streak after 19 straight. On market potential, Morgan Stanley said it expects the S&P 500 to rise to $6,500 by mid-2026 but also indicated investors will need to be patient as catalysts may not come until closer to year end with Fed rate cuts likely delayed until September. On gold, @KobeissiLetter highlighted the recent move higher in gold with a 5% move off last week’s low despite what they term a new bull market for the S&P 500. An equity bull market with safe-haven assets rising does present an interesting combination. 

Heading into the final hour of trading, equities were weak and near lows following the disappointing earlier 20-year bond auction. Breadth weakened to about 5:1 in favor or decliners while small caps continued to underperform. Communications (-0.60%), Materials (-1.2%) and Consumer Staples (-1%) were outperformers among S&P sector ETFs, while Utilities (-1.6%), Health Care (-2%) and Real Estate (-2.3%) led the underperformers with all 11 sectors in the red. On a growth versus value basis, both were unsurprisingly to the downside with growth the outperformer (thank you GOOGL). The Russell 1000 Growth slipped 1.43% versus its Value counterpart at -1.81%. The CBOE Volatility index (VIX) jumped over 12%, back above 20 to its best levels since May 12^th.

• WTI crude futures reflected a tale of two headlines early today. Morning news stories indicating Israel may be preparing to strike Iran’s nuclear facilities prompted geopolitical buying on potential supply risk. Later, weekly EIA data showed a surprise build in crude inventories and immediately drove prices lower. Prices fell further following the soft Treasury auction as economic concerns pulled oil lower along with equities. The July contract settled lower by $0.46/bbl, or -0.74%, to $61.57.
• Bitcoin soars to a new all-time high of $109,400, surpassing its previous high of $109,356 from 1/20/25, prices then rolled as low as $106,400, before ending the day above $108,000 in a volatile day of trading. The jump in Treasury yields following a weaker 20-year auction started the ball rolling for the stock market sell-off as the 10-year yield ended around 4.58% rising over 10-bps while the long bond 30-yr yield jumped 12 bps to 5.086%. The shorter term 2-yr only rose 3.7bps to 4%

• In Apparel Retail: VFC shares drop after forecasting a bigger-than-expected Q1 loss and warning investors it was rushing products to the US to beat the 90-day window of tariff pauses/guides Q1 revenue (5%)-(3%) vs. last year and sees Q1 adjusted operating loss ($125M)-($110M); TJX Q1 EPS of $0.92 beat by $0.01 and revenue of $13.11B beat by $80M but guides Q2 EPS $0.97-$1.01, below consensus $1.03; CRI shares fell after cutting its quarterly dividend to $0.25 from $0.80; GOOS reported EPS/sales above prior year as its direct-to-consumer channel performed better than expected, as revenue grew 5.1% to C$998.9M in FY25, topping analyst expectations of a more modest rise to C$974.4M.
• In Food & Beverages: KHC said it was looking at strategic transactions as demand for its products weaken in an uncertain economic environment. The company also said Timothy Kenesey and Alicia Knapp, executives at Berkshire Hathaway-owned companies, were leaving its Board of Directors after Warren Buffett’s conglomerate said it would no longer hold board seats.

• In Home Improvement Retail: a day after mixed results from HD and a reiterated outlook, rival LOW reported a slight beat on comp sales and reaffirmed guidance, as Q1 comp sales declined (-1.7%) y/y, while Street expected a (-2%) decline while gross margins of 33.4% exceeded expectations of 33.2%. HD was upgraded to Buy from Hold at Stifel following its results the day prior.

• In the Defense sector, President Trump announced the development of the "Golden Dome" missile defense system. "The Golden Dome will be capable of intercepting missiles even if they are launched from other sides of the world and even if they are launched from space." Hypersonic, ballistic, and cruise missiles can all be targeted and "knocked out of the air," added the president, who plans to move fast. While no companies were called out specifically by the President, LHX was mentioned by Sen. Jim Banks (R., Ind.) at the event.

• In Brokerage/Investment banking: XP Q1 revs 4.35B Reais vs. LSG est. 4.47B Reais; Q1 adj net profit of $1.24B Reais vs. est. 4.47B Reais; announces share buyback up to $1B Reais; NU announced that Youssef Lahrech stepped down as president and chief operating officer.
• In FinTech/Payments: FI defended at KBW, reiterating Buy and $200 tgt, notes shares are down 23% since Q1 results, following a sharp slowdown in Clover volume growth and commentary indicating a lack of acceleration in reported volume growth in Q2 – said thinks the market’s reaction has been disproportionately punitive.

• In MedTech: MDT reported Q4 adj EPS $1.62 vs. est. $1.58 and revs $8.90B vs. est. $8.824B while guiding outlook FY organic growth 5% and FY26 diluted non-GAAP EPS growth to be about 4%. MDT also said it is executing a strategic spin-off of its diabetes segment to form an independent entity to enhance growth
• In Managed Care: UNH pulls back after its recent bounce after a report in The Guardian finds insurer quietly paid facilities that helped it gain Medicare enrollees and reduce hospitalizations. In several cases identified by the Guardian, nursing home residents who needed immediate hospital care under the program failed to receive it, after interventions from UnitedHealth staffers https://tinyurl.com/3zu9enmm 

• In Internet: WIX shares slipped early after Q1 results and guidance as sees Q2 revs $485M-$489M, up 11%-12% y/y vs. est. $503M, backs FY25 revenue view $1.97B-$2B while increases share repurchase program by $200M; BIDU reported its quarterly revenue rose by 3%, indicating some recovery in the Chinese advertising market; Q1 revs stood at 32.45 billion yuan ($4.50 billion), beating analysts’ average estimate of 30.9 billion yuan; Baidu’s online marketing business fell 6% to 17.31 billion yuan. Analysts had an estimated 17.39 billion yuan.
• In Security Software: PANW reported Q3 revenue growth of 15% Y/Y, slightly above the Street’s ~14.5% estimate as product revenue growth of 16% Y/Y was much better than expected this quarter and easily surpassed the Street’s +8% Y/Y forecast, but Subscription/Support revenue was slightly below. RPO grew ~19% Y/Y, although this was at the low end of management’s guidance. Guidance for the FQ4 was largely in-line.
• In Hardware: Morgan Stanley raised its price tgt on DELL to $126 from $89 ahead of earnings saying they expect a slight April Q beat but unchanged FY guide as DELL balances AI infra momentum w/ mixed (positive leaning) trad infra checks & volatile tariff backdrop; for HPQ raise tgt to $29 from $25 ahead of earnings. COHR was added to Positive Catalyst Watch at JP Morgan. KEYS Q2 results topped expectations ($1.70/$1.31b topping ests $1.65/$1.28B), driven by strong sales in its communications segment.
• In AI/Data Center: the WSJ reported a data center in Texas that start-up Crusoe is building for OpenAI has secured $11.6 billion in funding to expand from two to eight buildings. The data center — expected to be the ChatGPT parent’s largest — will use up to 50,000 NVDA Blackwell chips per building. The funding, a mix of debt and equity, will increase the total amount secured for the project to $15 billion, the WSJ report said – WSJ. CRWV hit new all-time highs today, extending prior gains after announced it has priced $2 billion of senior notes with a 9.25% interest rate due in 2030. CoreWeave told Barron’s the deal size was upsized by $500 million and was five times oversubscribed.
• In Semiconductors: WOLF shares tumbled after the WSJ reported that the company is reportedly preparing to file for Chapter 11 bankruptcy within weeks, as it struggles to manage a $6.5B debt load. The company has been negotiating with creditors but has rejected several out-of-court debt restructuring proposals https://tinyurl.com/248nz7md ; SMCI hinted it was planning to expand its domestic manufacturing operation as President Donald Trump pushes to return production to the U.S. In an interview with The Wall Street Journal published Tuesday evening, CEO Charles Liang said the company would consider expanding production in states such as Mississippi and Texas as costs in Silicon Valley climb.
• In Video game Software: TTWO shares slipped after announcing a proposed underwritten public offering of $1B of shares of its common stock.