Mid-Morning Look

Wednesday, April 30, 2025

What goes up, must come down? U.S. share futures dropped, and bond yields rose after data showed the U.S. economy contracted in the first quarter (GDP). U.S. stocks are pulling back after a strong 6-day win streak for major averages that brought them close to key technical resistance levels prior to this morning’s decline, and less than 2% below its April 2 close, the day President Donald Trump unveiled his “reciprocal” tariffs. With one day trading day left in April, the S&P 500 is down over -2% for the month, while the Nasdaq erases gains. The data deluge this morning was overwhelming, showing Q1 GDP contracted (1^st neg reading since 2022), while ADP private payrolls were weaker, Chicago PMI remains sharply in contraction territory, but a small bright spot was in-line core PCE inflation for March. Regarding trade/tariffs, White House trade adviser Peter Navarro said the Trump administration is working as fast as possible to negotiate deals with other countries. “Every hour on the hour, we’ve got countries coming into the building across the street there, the USTR,” he said, referring to the Office of the U.S. Trade Representative.

Commodity related prices/stocks are under pressure this morning after China’s official purchasing managers’ index (PMI) fell to 49.0 in April versus 50.5 in March, the lowest reading since December 2023 and missing a median forecast of 49.8 in a Reuters poll. The data weighed on copper, gold, oil prices and related stock sectors. Technology space getting hammered early, led by weak advertising spending growth in Internet space on heels of SNAP results (weighing on names like RDDT, PINS and META which reports tonight), while AI data server names fall on weak SMCI guidance (hitting semis, nuclear power names and servers like DELL, HPE, VRT). Software and AI in focus tonight with MSFT earnings results on tap along with QCOM, HOOD, KLAC tonight.

The U.S. Dollar index (DXY) edges higher on final day of April but still remains on track for a -7.5% fall in March and April, the biggest two-month drop since May 2002 as the euro jumped on German fiscal spending plans and the yen rose in a flight to save haven currencies. Investors lost confidence in the dollar following tariff uncertainties. The 10-yr yield volatile, hitting lows of 4.14% this morning (down from April highs above 4.5% and vs. 4.25% to kick off the month), spiking to highs around 4.23% after the GDP data, and then back to 4.17% last.

• Chicago PMI April index 44.6 below consensus 45.5 and prior 47.6.
• US advance Q1 GDP -0.3% (1st negative adv reading since 2022) and US advance Q1 final sales -2.5%; advance Q1 consumer spending +1.8%, advance Q1 GDP deflator +3.7% (vs. consensus +3.0%), advance Q1 PCE price index +3.6% and advance Q1 core PCE +3.5% (vs. consensus +3.3%).
• The U.S. Q1 employment cost index +0.9% (consensus +0.9%) vs Q4 +0.9% (prev +0.9%); Q1 wages/salaries +0.8% vs Q4 +1.0% (prev +0.9%); Q1 benefit costs +1.2% vs Q4 +0.8% (prev +0.8%).
• March personal saving rate 3.9% vs Feb 4.1%, March personal income +0.5% (vs. consensus +0.4%) vs Feb +0.7% (prev +0.8%) and March Personal Spending +0.7% (consensus +0.5%) vs Feb +0.5% (prev +0.4%); US March real consumer spending +0.7% vs Feb +0.1% (prev +0.1%).
• Monthly PCE inflation data showed: March overall PCE price index unchanged, in line with consensus vs Feb +0.4% (prev +0.3%) and March core PCE price index unchanged (vs. est. +0.1%) vs Feb +0.5% (prev +0.4%). The March y/y PCE price index +2.3% (vs. est. +2.2%) vs Feb +2.7% and core +2.6% (vs. est. +2.6%) vs Feb +3.0%.

• Lodging REIT sector call at Bank America: Bank America noted they have been cautious on Lodging REITs since late 2021 and were positioned for late cycle risks; however, they est. the sector is now pricing in ~90% risk of recession and an 8-10% RevPAR decline, on par with a “normal” recession. The firm upgrades DRH, SHO to Buy from Underperform as lean toward quality given their assets, balance sheets and capital allocation; raised INN to Neutral from Underperform as financial leverage obfuscates core real estate trading well below replacement cost and downgraded PK to Underperform on idiosyncratic risks given its elevated dividend payout, union exposure and leverage and still see an overhang for U/P rated PEB given refinancing for its low coupon convert.
• In Industrials: CAT Q1 EPS and revenue below consensus. 2Q sales guide of ~flat y/y better than consensus. Guides FY pre-tariff operating margins in upper half of annual margin target range; FLS Q1 EPS of $0.72, ahead of $0.60 estimates, driven by better-than-expected revenue and margin in both segments; OSK Q1 sales and EPS fell short of consensus; TT Q1 EPS beat on better revenue while reiterates FY EPS and organic rev growth guidance; WNC shares fall on wider Q1 loss on lower revs and lowers its 2025 non-GAAP adjusted EPS view and revenue outlook.
• In Paper & Packaging: IP firm said Q1 sales rose 28% y/y to $5.9B below ests $6.2B and EPS loss of (-$0.23) vs. est. $0.37 saying overall market demand was softer than anticipated in both the North American and Europe, Middle East and Africa regions, and demand hit as consumers reined in spending amid persistent inflation and fears of a recession due to a global trade war; shares of SON declined on Q1 miss as EPS $1.38 vs. est. $1.41; Q1 revs $1.71B vs. est. $2.04B; reaffirmed full-year guidance.
• In Autos: Ford (F) was upgraded to Peer Perform from Underperform at Wolfe Research; DAN Q1 EBITDA and sales beat as guides sales to high end of $9.53-$10.03B range, above consensus and reaffirms EBITDA guidance; STLA suspended its guidance for a moderate recovery this year, after a profit drop in 2024, due to the uncertain impact of President Trump’s tariffs, and said it would review capital spending plans. PAG the latest auto dealer to miss as Q1 adj net income $226.3M missed the $238.6M estimate on lower revs.
• In Building Products & Materials: VMC Q1 EPS and adj EBITDA beat in qtr on in line revenue while reaffirmed FY adj EBITDA guidance; MLM Q1 in line with pre-announcement on 4/10 and reaffirmed FY numbers; SWK Q1 EPS beat on better sales while FCF loss came in worse than expectations; GNRC Q1 EPS beat on better sales while widens FY net sales guidance to flat to +7% (vs. prior +3-7%) and widens FY EBITDA margin.

• GEHC +5%; reported a beat on the top and bottom line for Q1, announces $1B share repurchase program, cuts FY25 adjusted EPS view to $3.90-$4.10 from $4.61-$4.75; backs FY25 organic revenue growth of 2%-3% year-over-year; cuts FY25 free cash flow view to at least $1.2B (from $1.75B).
• HUM +2%; posts better results in space than rivals, with EPS $11.58 handily topping the $10.07 estimate on slight miss to revs but backs FY25 adjusted EPS view ~$16.25, vs. consensus $16.35 and affirms FY 2025 Insurance segment benefit ratio guidance.
• MDLZ +3%; as 1Q EPS of $0.74 vs Consensus $0.66 on largely in-line sales; organic revs +3.1% vs Consensus +3.5%; Q1 gross margins beat by 100 bps and operating margins beat by 200 bps; reaffirming both FY organic revenue growth (+5%) and EPS (constant F/x) of +10%.
• QRVO +9%; shares jumped on results as posted a $20 million revenue upside and $0.42 better than consensus EPS, on sales of $870 million and EPS of $1.42, versus the Street consensus of $850 million and $1.00, respectively, on better guide (prompted upgrade to Buy from Hold and $95 tgt at Benchmark).
• RGLS +132%; NVS agreed to buy RGLS for up to $1.7B to gain access to its experimental kidney disease drug, paying Regulus upfront $7 per share in cash, or about $800M, while Regulus is also eligible to receive an additional $7 per share contingent upon certain regulatory milestones.
• STX +8%, WDC +7%; HDD disk drive stocks STX and WDC both outperform on earnings and results; STX Q3 EPS $1.90 vs. est. $1.74; Q3 revs $2.16B vs. est. $2.13B on better guide while WDC guides Q4 revs $2.45B and adj. EPS outlook of $1.45, above the Street at $2.38B/$1.16 after slightly weaker Q3 revs.

• FSLR -9%; shares tumbled after reporting Q1 results below consensus, missing on sales, GM, and EPS and also lowered FY25 guidance and revised bookings downward to reflect the impacts of global tariffs implemented earlier this month (downgraded at Oppenheimer and Keybanc).
• NCLH %; as Q1 EPS of $0.07 missed ests. $0.09 on revenues 1% light while guides 2Q EBITDA about 1% light on yields of +2.5%; reaffirming FY EPS and EBITDA but is lowering the FY yield guide to +2-3% vs prior +3%, which reflects recent booking trends and changes in the macro
• SBUX -7%; after reporting a disappointing quarter, with weaker-than-expected North America comps, a further decline next quarter and a contraction in operating margin. Goldman Sachs downgraded Starbucks to Neutral from Buy as it expects a slower path to North America sales recovery.
• SMCI -16%; shares tumbled after saying expects Q3 revenue between $4.5B-44.6B and EPS $0.29-$0.31, below prior outlooks of $5B-46B and $0.46-$0.62 (and ests $5.4B $0.53), after saying during Q3 some delayed customer platform decisions moved sales into Q4. (weighed on AI server makers DELL, VRT, HPE).
• SNAP -16%; as 1Q advertising revenue +9% y/y, same as 4Q, with subscription driving 1Q 1% above Street, while EBITDA $44M above. Lack of 2Q guide and Cloud costs/DAU guidance unchanged, causing GM pressure to weigh on shares (slow ad growth weighed on names like META, RDDT, PINS, others).
• WERN -14%; reported a Q1 miss driven by elevated insurance costs, extreme weather, and accelerated IT spend, all coupled with operational inefficiencies and an ongoing truckload market trough.