Mid-Morning Look

Tuesday, January 28, 2025

U.S. stocks very volatile in the first 30 minutes of trading, with major averages opening higher, quickly turning lower in a sharp move, only to rebound and move back to highs as markets await several potential key catalysts in coming days. President Trump’s uncertain tariff policy (lots of headlines out overnight) and the fallout in AI stocks after the China AI startup DeepSeek headlines Monday remained the market focus this morning. However, the FOMC policy meeting tomorrow (first rate pause expected since rate cut cycle began in September), several key earnings results (AAPL, META, MSFT, TSLA) tomorrow, and both GDP and PCE inflation data Thursday and Friday respectively will be closely watched. U.S. stock futures staged a small rebound overnight after Monday’s tech-fueled selloff as traders scooped up beaten-down chipmakers and power providers. Strength in shares of BA, IVZ and weakness in GM, JBLU, PII, SYF on earnings.

On tariffs/trade, the Financial Times reported the Trump administration is considering introducing universal tariffs on US imports, beginning at 2.5% and increasing monthly by the same amount, potentially reaching up to 20%. The gradual approach aims to allow businesses and countries to adjust while incentivizing negotiations. Treasury Secretary Bessent supports the phased model. Trump has threatened tariffs as high as 25% on imports from Canada, Mexico, and Colombia. The dollar strengthens against most major currencies after the comments from Trump and his Treasury Secretary Bessent stoked concern about widespread US trade tariffs. Treasuries fall, with US 10-year yields edge higher to 4.55%.

• December Durables ex-transportation orders +0.3% (vs. est. +0.4%) and vs Nov -0.2%; Dec Durables ex-defense orders -2.4% vs Nov -1.3% (prev -0.4%); Dec nondefense cap orders ex-aircraft +0.5%, (est. +0.3%) vs Nov +0.9%.
• November 20-metro area home prices +4.3% (consensus +4.3%) from year ago vs +4.2% in October (previous +4.2%) — S&P CoreLogic Case-Shiller. US November home prices in 20 metro areas +0.4% seasonally adj (consensus +0.3%) vs revised +0.4% in October (previous +0.3%). US November 20-metro area home prices non-adjusted -0.1% vs -0.2% in October (previous -0.2%).

• In Software: SAP said it was more optimistic about its financial results this year due to faster growth in cloud computing and artificial intelligence; guided operating profit in 2025, on a constant currency basis, to be between 10.3B euros and 10.6B euros ($10.75B-$11.06B) compared to prior view of about 10.2B euros. ADSK was upgraded to Outperform at Mizuho and raised tgt to $400 from $280 saying with the smooth rollout of the new Transaction Model, they estimate ADSK can achieve ~$10B revenue by FY29E, accelerating its 5-year CAGR to ~13% (from ~11% pre-transition) and delivering ~$15 FCF/share alongside ~400bps margin expansion. ROP was upgraded to Buy from Hold at TD Cowen and raise tgt to $615 from $535 saying sees accelerating revenue growth in 2025, expecting discontinuation of headwinds from 2024, including production issues.
• In Electrical Components/Equipment: Melius downgraded 4 of its “capex thematic” names from Buy to Hold, cutting shares of VRT, ETN, TT and JCIWhile Melius said it is not concerned about earnings results for any of the four in ’25, or even ’26 for that matter, it is concerned about the P/E that investors will be willing to apply to those results (citing DeepSeek fears). It does, however, raise the risk that this AI CAPEX arms race has peaked. Citi said PWR, VRT, ETN now more reasonable valuations following sell-off given the DeepSeek news that the Chinese startup has developed an AI model that is more cost and computationally efficient than those at US Tech peers.

• CIEN +4%; was upgraded to Overweight at JP Morgan and raised tgt to $88 saying pullback in shares offers entry point and sees limited impact from DeepSeek related concerns to earnings.
• IVZ +7%; Q4 adj EPS $0.52 beats the $0.47 estimate as ended the quarter with $1.85 trillion in assets under management as of Dec. 31, up 16.4% y/y; investment management fees rose 12.4% to $1.13 billion in Q4.
• RCL +5%; Q4 EPS $1.63 tops $1.50 estimate and revs rose to $3.76B from $3.3B y/y and vs. ests. $3.77B; notes net cruise costs, excluding fuel, increased 13.4%, compared with a 6.2% rise a year earlier; carried 2.2 million passengers in Q4, +11.3% y/y; guides FY EPS view to $14.35-$14.65 vs. est. $14.41.
• SGRY +15%; after Reuters reported Bain Capital Private Equity LP submits a non-binding proposal to acquire 100% of Surgery Partners’ shares for cash consideration of $25.75 per share.
• VSCO +5%; was upgraded to Overweight from EW at Barclay’s and raised its tgt to $53 from $51 as it checks off its 3 critical fundamental catalysts: 1) positive promotional inflection this quarter; 2) sustainable positive comp inflection in FYQ324; and 3) positive sales-to-inventory spread.

• JBLU -21%; Q4 revs $2.28B vs. est. $2.26B on smaller loss of (-$0.21) per share vs. est. (-$0.31), while Q4 capacity decreased (-5.1%) and Q4 CASM decreased (-0.4%); sees Q1 RASM (-0.5%) to up 3.5%.
• JNPR -5%; shares tumbled after a report that the Dept. of Justice may be more inclined to file a lawsuit to block its planned $14B sale to HPE Hewlett Packard is scheduled to meet with DOJ on Tuesday to discuss the deal as the regulator appears to be leaning toward a lawsuit to block the transaction https://tinyurl.com/383wb8p9
• LMT -8%; as posted Q4 net income of $527M or $2.22 per share, a 71% slide y/y as it booked $1.29B in losses associated with classified programs at its aeronautics and missiles and fire control business units; Q4 sales $18.62B vs. est. $18.84B; forecasts EPS about $27-$27.30 below est. $27.82.
• LPTX -69%; after saying it will discontinue late-stage trials of its drug, sirexatamab, in patients with gastric cancer saying the study for gastric cancer treatment to be negative on primary PFS endpoints.
• NEP -27%; after saying it’s suspending its distribution to common unitholders for an “indefinite” period, facilitating a business plan that doesn’t include any equity issuance.
• PII -8%; as weak guidance offset better Q4 results; said adjusted EPS for 2025 is expected to decline about 65% y/y, much weaker than expected and expect 2025 sales down 1%-4%.
• SYF -6%; shares declined on results and guidance as forecast 2025 net revenue in the range of $15.2B-$15.7B, below revenue of about $16.13B for 2024 and below consensus as spending levels moderate and interest rates dip.
• VIK -5%; after RCL announced the launch of Celebrity River Cruises, a premium river cruise vacation that will begin taking bookings this year, committing to an initial order for 10 transformative ships and plans to sail in 2027.
• XRX -12%; after Q4 miss; adj EPS $0.36 vs. est. $0.49; Q4 revs $1.61B vs. est. $1.58B; sees 2025 revenue growth in low single digits from $6.22B in 2024.