Market Snapshot
| Dow | 44711.43 | +342.87 | (0.77%) | | Nasdaq | 19945.64 | +295.69 | (1.50%) | | SP 500 | 6115.07 | +63.10 | (1.04%) | | 10-yr Note |
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| | NYSE | Adv 2175 | Dec 606 | Vol 1.07 bln | | Nasdaq | Adv 3171 | Dec 1205 | Vol 8.46 bln |
Industry Watch
| Strong: Materials, Consumer Discretionary, Information Technology, Communication Services |
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Moving the Market
-- Reacting to January PPI, which was better than feared, and weekly jobless claims, which remain relatively low
-- Treasury yields moving lower
-- Ongoing buy-the-dip bid following yesterday
-- Reciprocal tariff plan better than feared
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Closing Stock Market Summary
13-Feb-25 16:25 ET
Dow +342.87 at 44711.43, Nasdaq +295.69 at 19945.64, S&P +63.10 at 6115.07
[BRIEFING.COM] The January Consumer Price Index on Wednesday sent some inflation shockwaves through the stock market and Treasury market. Fortunately, there were no aftershocks following today's release of the January Producer Price Index, which wasn't all that pleasing from a headline perspective but still created a sense among market participants that there might not be an inflation shockwave in the PCE Price Index when it is released on February 28.
That sense of things was influenced by month-over-month declines in various components, like airfare and physician care, and it resonated in the Treasury market, which provided clearance for the stock market to continue with yesterday's buy-the-dip efforts.
The stock market did so with conviction, further energized in the afternoon session by the recognition that President Trump's reciprocal tariff plan might not be as economically provocative as feared. To wit, the tariffs won't be applied until April 1 at the earliest, and at that time will be applied on a case-by-case basis. The president also injected a pleasant geopolitical thought with the announcement that he will be seeking a discussion with Xi Jinping and Vladimir Putin in which he will suggest they all cut their defense spending in half and pursue denuclearization.
The 2-yr note yield fell six basis points to 4.31% and the 10-yr note yield dropped 11 basis points, completing a round-trip to 4.53% where it stood just before yesterday's release of the January Consumer Price Index.
The move in the 10-yr note yield would have effectively stolen today's trading show if not for the S&P 500's assault on its record closing high (6118.71). Ultimately, it came up a whisker shy of a new high, yet there was still ample cause for celebration with all 11 S&P 500 sectors ending the day higher.
The materials (+1.7%), consumer discretionary (+1.6%), information technology (+1.5%), and communication services (+1.1%) sectors were today's biggest winners while the utilities (+0.1%) and industrials (+0.1%) sectors brought up the rear.
Individually, MGM Grand (MGM 40.37, +6.00, +17.5%) and Molson Coors (TAP 58.54, +5.09, +9.5%) were the biggest gainers among S&P 500 components, rallying in the wake of their earnings results, yet other big moves were registered outside the S&P 500. Stocks like AppLovin (APP 471.67, +91.35, +24.0%), Crocs (CROX 110.05, +21.22, +23.9%), and Robinhood Markets (HOOD 6380, +7.89, +14.1%) were standouts in that regard.
Dow component Cisco Systems (CSCO 63.84, +1.31, +2.1%) advanced after its earnings report, yet NVIDIA (NVDA 135.29, +4.15, +3.2%) and Apple (AAPL 241.53, +4.66, +2.0%) took the wheel as drivers of the price-weighted average. They were mega-cap leaders along with Tesla (TSLA 355.94, +19.43, +5.8%).
Reflecting today's broad-based rally effort, advancers led decliners by a better than 3-to-1 margin at the NYSE and by a roughly 5-to-2 margin at the Nasdaq; the Russell 2000 climbed 1.2%; the S&P Midcap 400 advanced 0.9%; and the equal-weighted S&P 500 jumped 0.9%.
- Dow Jones Industrial Average: +5.1% YTD
- S&P 500: +4.0% YTD
- Nasdaq Composite: +3.3%
- S&P Midcap 400: +2.6% YTD
- Russell 2000: +2.3% YTD
Reviewing today's economic data:
- The Producer Price Index for final demand increased 0.4% month-over-month (Briefing.com consensus 0.2%) following an upwardly revised 0.5% increase (from 0.2%) in December. Excluding food and energy, the index for final demand increased 0.3% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.4% increase (from 0.0%) in December. On a year-over-year basis, the index for final demand was up 3.5% (3.51% unrounded) versus 3.5% in December (3.46% unrounded). Excluding food and energy, the index for final demand was up 3.6% (3.61% unrounded) versus 3.7% in December (3.75% unrounded).
- The key takeaway from the report is that the month-over-month readings were less upsetting than the month-over-month readings seen in the CPI report. Also, the year-over-year readings look improved at first blush, yet the revisions moved the December year-over-year readings for PPI and core PPI higher (versus the initial readings), so the improvement in January is from a higher base, meaning it is relative and not absolute. (Sidenote: when the December PPI report was first released, PPI was up 3.3% year-over-year and core PPI was up 3.5%).
- Initial jobless claims for the week ending February 8 decreased by 7,000 to 213,000 (Briefing.com consensus 217,000) while continuing jobless claims for the week ending February 1 decreased by 36,000 to 1.850 million.
- The key takeaway from the report is the low level of initial jobless claims, which continue to connote an otherwise positive demand outlook on the part of employers who are reluctant to cut staff.
Friday's economic lineup includes:
- 8:30 a.m. ET: January Retail Sales (Briefing.com consensus 0.0%; prior 0.4%) and Retail Sales, Ex-Auto (Briefing.com consensus 0.3%; prior 0.4%)
- 8:30 a.m. ET: January Export Prices (prior 0.3%) and Export Prices, excluding agricultural products (prior 0.3%); Import Prices (prior 0.1%) and Import Prices, excluding fuel (prior 0.1%)
- 9:15 a.m. ET: January Industrial Production (Briefing.com consensus 0.3%; prior 0.9%) and Capacity Utilization (Briefing.com consensus 77.7%; prior 77.6%)
- 10:00 a.m. ET: December Business Inventories (Briefing.com consensus 0.1%; prior 0.1%)
Looking good all around
13-Feb-25 15:30 ET
Dow +372.99 at 44740.47, Nasdaq +261.87 at 19993.72, S&P +57.92 at 6109.89
[BRIEFING.COM] It is looking good in many respects for the stock market. Every major average is higher; all 11 S&P 500 sectors are higher; 28 of the 30 Dow components are higher; value stocks are up and so are growth stocks.
The S&P 500 is on the doorstep of a new closing high, energized in part by some hopeful talk from President Trump that he will be seeking discussions with Xi Jinping and Vladimir Putin to talk about reducing military spending and denuclearization. His suggestion to them, he said, will be to cut military budgets in half.
That view followed an earlier announcement that reciprocal tariffs will go into effect April 1 at the earliest and be applied on a case-by-case basis.
The market cap-weighted &P 500 is up 1.0%, yet the equal-weighted S&P 500 isn't far behind with a gain of 0.8%.
Advancers lead decliners by a 3-to-1 margin at the NYSE and by a better than 2-to-1 margin at the Nasdaq.
Chasing a record high
13-Feb-25 15:00 ET
Dow +333.46 at 44700.94, Nasdaq +248.94 at 19980.79, S&P +54.30 at 6106.27
[BRIEFING.COM] The chase is on for a new record closing high for the S&P 500. The number that will get it done is 6118.72. The all-time high, reached January 24, is 6128.18.
The market seems to like the reciprocal tariff plan, which is being deemed better than feared since it will be imposed on a "case by case basis," according to the president, versus a sweeping universal implementation. It could get to that, but that doesn't appear to be the starting point.
Now, there is some chasing action, driven by a fear of missing out on further gains, and possibly some short-covering activity that is carrying the indices northward.
Strikingly, there are only three S&P 500 sectors that are actually outperforming the market today. The real benefit is that one of them is the information technology sector (+1.5%), which has a 31.39% weighting in the S&P 500. The other two sectors are materials (+1.6%) and consumer discretionary (+1.4%).
Gains for the remaining eight sectors are all less than the 0.92% increase for the market cap-weighted S&P 500.
Session high for S&P 500
13-Feb-25 14:30 ET
Dow +346.33 at 44713.81, Nasdaq +218.48 at 19950.33, S&P +48.75 at 6100.72
[BRIEFING.COM] The president's update on reciprocal tariffs has been received well by the market, which saw the Dow Jones Industrial Average, S&P Midcap 400, Russell 2000, and S&P 500 break to session highs in its wake.
Market participants presumably like the idea that the implementation won't be immediate, thereby leaving room for the U.S. to negotiate better tariff terms and for this approach to possibly be better than a universal tariff, as discussed during the campaign.
The S&P 500 for its part cracked the 6,100 level while the Dow Jones Industrial Average cleared 44,700. The Nasdaq has a little more work to do but is near the top end of today's range.
All 11 S&P 500 sectors are in positive territory with gains ranging from 0.01% (utilities) to 1.5% (materials).
Staying on positive track
13-Feb-25 14:00 ET
Dow +177.84 at 44515.32, Nasdaq +180.95 at 19912.80, S&P +35.89 at 6087.86
[BRIEFING.COM] The major indices have been locked in mostly sideways action during the afternoon trade. Sideways isn't bad, though, because that means a posture in positive territory.
The Nasdaq Composite (+0.9%) has the highest perch today followed by the S&P 500 (+0.6%). The Russell 2000 (+0.3%) and Dow Jones Industrial Average (+0.4%) are keeping watch closer to the ground.
On a percentage basis, NVIDIA (NVDA 134.87, +3.73, +2.8%), Cisco (CSCO 64.21, +1.68, +2.7%), which reported results after yesterday's close, and Apple (AAPL 241.39, +4.52, +1.9%), which is partnering with Alibaba (BABA 118.81, +0.47, +0.4%) to develop AI for China iPhone users, according to The Information, are the biggest winners in the Dow. Separately, Apple also announced that it will be holding a product event on February 19.
Goldman Sachs (GS 644.43, -4.57, -0.7%) is today's worst-performing Dow component.
Moments ago, President Trump signed a presidential memorandum on reciprocal tariffs, saying the U.S. will match the tariff rates of other countries and will also consider value-added taxes and non-tariff barriers when deciding tariff rates.
Dutch Bros is perking up nicely following robust Q4 earnings; new CEO had a great first year (BROS)
- Dutch Bros (BROS +27%) is surging to a new 52-week high following its Q4 report last night. After gapping lower following its Q2 report in August, this West-Coast coffee chain has reported back-to-back huge quarters in Q3-Q4. Beyond just the headline numbers, what also stood out was its system same shop comp at +6.9% (+9.5% for company-operated shops), a notable improvement from Q3's +2.7% (+4.0%) and Q2's +4.1% (+5.2%).
- Relative to its competitors, BROS believes it is uniquely positioned and on trend, with an emphasis on iced beverages, personalization, and speed. BROS sees an increasing relevance of the customized energy occasion, which has been core to its menu for over a decade. BROS believes that menu innovation and staying ahead of trends, especially in the competitive beverage industry, is critical.
- In Q4, BROS returned some successful LTO offerings, Candy Cane and Hazelnut Truffle Mocha, and added Jingle Nog and Winter Shimmer Rebel as seasonal offerings. Furthermore, BROS used promotional innovation to surprise customers with giveaways like the passenger princess straw topper and its custom holiday ornament. These were huge hits with customers and these kinds of things strengthen brand loyalty.
- Of note, BROS has increased its advertising budget and it's paying off. BROS has seen considerable improvements to both brand awareness and traffic. Also, its loyalty program, known as Dutch Rewards, is gaining traction with a record 71% of transactions coming from Dutch Rewards members.
- Overall, 2H24 showed a noticeable acceleration in results even as other coffee chains have struggled. We have to tip our cap to the new CEO, she had a great first year at the helm. CEO Christine Barone took over on January 1, 2024. In a bit of irony, she is a former Starbucks (SBUX) executive. Her timing in terms of moving from SBUX to BROS was pitch perfect as the former struggles and the latter succeeds. It is clear that she has been making the right changes to turn Dutch Bros around.
Datadog tops Q4 estimates but pulls back amid weak FY25 guidance (DDOG)
Datadog (DDOG -8%) fetches a lower price today after its FY25 guidance misses the mark. The SaaS company, allowing clients to monitor their IT infrastructure, tends to already guide somewhat conservatively, basing its forecasts on trends observed in recent months and then applying conservatism to these growth trends. As such, FY25 earnings and sales projections, predicting $1.65-1.70 and $3.175-3.195 bln, respectively, both below consensus, are fueling a significant pullback today.
- While guidance was disappointing, most of DDOG's Q4 report was uplifting. The company topped earnings and sales estimates again in the quarter, a recurring theme, delivering adjusted EPS of $0.49 and revs of $737.73 mln, a 25.1% jump yr/yr, consistent with the past six quarters.
- Usage growth from existing customers mirrored what DDOG noticed in the year-ago period, starting strong and slowing down toward the end of December. Management remarked that the business environment remained stable. Enterprise customers continued to underpin usage growth, exhibiting outsized strength, while growth remained stable across small and medium-sized businesses (SMBs), posting a slight yr/yr uptick compared to Q3.
- Customer growth was strong. DDOG added 800 net customers in Q4, pushing its total to around 30,000. Customers with annualized recurring revenue (ARR) of $1 mln or more jumped by 17% yr/yr to 462, and those with ARR of $100K or more increased by 13% to 3,190. Notably, DDOG posted the highest number of new logo annualized bookings since 2023.
- Also robust was the contribution from AI-native customers, which represented around 6% of Q4 ARR, around the same as last quarter but up 3 pts from the year-ago period. DDOG mentioned in Q3 that AI-native customers are ramping rapidly, potentially leading to increased commitments over time with better terms. While a positive long-term development, DDOG warned that this could create near-term revenue volatility. Management noted today that growth from this cohort was largely stable from last quarter, keeping this development in play.
- Furthermore, on AI, a trend that unfolded during this earnings season was that three major hyperscalers, including Amazon (AMZN), Microsoft (MSFT), and Google (GOOG), missed their Q4 cloud revenue forecast. These tech giants touched on capacity constraints on the AI side of their businesses but noticed a normal pattern of cloud migrations on the non-AI side. DDOG mentioned that it is growing faster than cloud providers, even though they show signs of slowing. Management added that it continues to expect outperformance due to broad-based cloud transformations.
DDOG's Q4 report was mostly positive. However, for a company trading at a pricey 71x forward earnings multiple ahead of its Q4 report, its weak guidance was sufficient to ignite meaningful selling pressure today. That said, DDOG remains a leader in the IT observability market. While an uptick in AI-native customers creates near-term headwinds, it should ultimately form a sturdier base for longer-term growth.
Deere plowing lower after reporting another rough quarter as ag downcycle continues (DE)
Thanks to Deere's (DE) cost containment efforts and analysts' subdued expectations, the farming and agriculture equipment maker edged past 1Q25 estimates, but the company's results and outlook were otherwise pretty bleak. A decline in farming incomes and persistently high interest rates weighed heavily on demand once again, driving sales and net income lower by 35% and 50% yr/yr, respectively. Also, despite the better-than-expected Q1 earnings, DE only reaffirmed its FY25 net income outlook of $5.0-$5.5 bln, creating some disappointment among investors who were looking for a turnaround later this year. Those hopes were reflected in the stock's 12% run higher this year, prior to today's sell off.
- Like last quarter, each of DE's main business units experienced steep double-digit sales declines in Q1. Nearly matching the 38% plunge in Q3, sales of large tractors and combines dove by 37% in Q4 to $3.07 bln due to lower shipment volumes in the Production & Precision Agriculture segment. Unfortunately, there's no relief on the horizon either as DE lowered its FY25 sales outlook for the unit to -15% to -20% from its prior forecast of -15%.
- Tariffs are throwing another wrench into the mix. In particular, the 25% tariff on steel and aluminum will drive manufacturing and production costs higher at a time when farmers are less willing and able to absorb price increases. DE's FY25 guidance didn't incorporate the potential impact of tariffs, adding more uncertainty to equation.
- On a more positive note, the company stated that it's seeing some signs that its efforts to reduce production and control inventory are beginning to pay off. Additionally, following back-to-back years of declines in 2023 and 2024, farming income is expected to modestly increase this year, perhaps providing a much-needed catalyst as DE awaits a replacement cycle. The company has launched upgraded tractors and combines that offer new technology, including equipment that can operate without an operator.
- The prospect for lower interest rates, which President Trump is pushing for, should also help DE's struggling Small Agriculture & Turf segment. This unit, which sells riding lawn mowers and lawn care equipment, caters more to individuals and has faced stiff headwinds from the slowdown in consumer spending. Following last quarter's 25% drop, sales fell by 28% in Q1 to $1.75 bln as shipment volumes plummeted.
To put it bluntly, this was another dismal quarter for DE as the ag downcycle continues to hammer the company. The stock has been impressively resilient, though, reflecting the market's view that the worst may be in the rearview mirror following several quarters of inventory reductions.
The Trade Desk plunges toward August lows following a rare top-line miss in Q4 (TTD)
Following a nearly nine-year streak of exceeding revenue estimates, The Trade Desk (TTD -31%) stumbled in Q4, falling short of its own and analysts' top-line forecasts, spurring a sharp pullback as shares plunge toward August lows. Fanning the flames, TTD projected Q1 revenue below consensus for the first time since 4Q22, expecting at least $575 mln, translating to around a 17% jump yr/yr and marking the third straight period of decelerating growth.
TTD hosts a programmatic demand-side ad platform, sending the highest bidder's ads to numerous ad spaces across various mediums, including websites, applications, and smart TVs. TTD has focused heavily on connected TV or CTV, which it wants to make the most effective channel in programmatic advertising. The advertising market has been rebounding throughout the past year, accelerating during Q4 due to healthy political ad spending alongside strong growth in many other verticals, like automotive, technology, and computing.
With the wind at its back, investors were optimistic that TTD would realize outsized benefits, pushing shares to record highs of $140 in December, a nearly 100% spike from the start of 2024. However, TTD was unable to capitalize in Q4.
- What went wrong? TTD attributes its revenue miss, growing its top line by 22.3% yr/yr to $741 mln, below its $756 mln projection, to a series of minor setbacks. CEO Jeff Green stressed that the shortfall did not result from a lack of opportunity or greater competitive pressures. Instead, TTD's focus on recalibrating to pounce on long-term opportunities caused it to lose focus in the near term. TTD also endured a slower-than-expected uptake of its Kokai platform, further dragging down performance as it had to maintain broad support for its legacy platform.
- TD has implemented four significant changes in the past few months to position it for long-term success. The first was a massive reorganization in December, which streamlined client-facing teams and reduced complexity. The second was placing more emphasis on internal effectiveness. Thirdly, TTD increased its resource allocation for brands. Lastly, TTD revamped its product development process, shifting back to smaller agile teams that release weekly updates.
- Future changes are expansive. Mr. Green outlined 15 items it is engaged in to enhance its position in the programmatic ad market. One was centered on CTV, which remains the core driver of TTD's overall business, representing nearly half its total revenue. TTD is also focused on transitioning all its clients to Kokai this year. Another development is TTD's investments in AI, leveraging the technology to power forecasting and improving internal productivity. The company mentioned that hundreds of AI-related enhancements are coming in 2025.
Given its excellent track record, exceeding internal revenue forecasts consistently for 33 consecutive quarters, TTD's quarterly top-line upside was virtually guaranteed. As such, missing its forecast shocked the market today, creating a ripple effect as its programmatic ad platform counterpart, Magnite (MGNI), sells off in sympathy. However, today's fire sale offers an attractive opportunity for buy-and-hold investors. TTD has maintained confidence that dominant players in the ad market, including Google (GOOG) and Facebook (META), are exiting the market, leaving a massive crater for TTD to fill, which would provide substantial upside over the longer term.
Cisco trades modestly higher following solid JanQ results/guidance; returns to revenue growth (CSCO)
Cisco Systems (CSCO +1%) is trading higher after reporting EPS upside for Q2 (Jan). Revenues grew 9.4% yr/yr to $13.99 bln, halting four consecutive quarters of yr/yr revenue declines. The Q3 (Apr) guidance was solid with in-line EPS but upside revs. Q2 is typically a seasonal slow period for Cisco, so these results were good to see. In addition, Cisco announced a $15 bln increase to its share buyback authorization and it slightly increased its dividend.
- New product orders grew 29%, up 11% organically when excluding Splunk, marking Cisco's fourth consecutive quarter of accelerating order growth. Enterprise product orders were up 27% with double-digit growth across all geographic segments. Cisco continues to see very strong momentum in Service Provider & Cloud, with product orders up 75%, driven by triple-digit growth in webscale. Within SP & Cloud, orders from telco customers grew more than 20% as they reinvest in their core networks to be ready for AI connectivity.
- Importantly, AI infrastructure orders with webscalers in Q2 surpassed $350 mln, bringing its YTD total to approximately $700 mln. Cisco says it's on track to exceed $1 bln of AI infrastructure orders in FY25. Cisco also noted that three of the top six webscalers each grew orders in the triple digits, which shows Cisco's increasing relevance in this high-growth market as they scale their infrastructure for AI.
- From a product perspective, networking product orders grew double digits, driven by switching, enterprise routing, webscale infrastructure, and industrial networking applications in its IoT products. Campus switching orders were up double digits, and Cisco expects its campus switching portfolio as well as its WiFi 7 access points to gain traction with increasing return-to-office policies. Cisco also continues to see robust order growth for data center switching.
- Cisco also touched on the recently proposed US tariffs. The company noted that its guidance includes the added cost, driven by increased tariffs on China and the proposed tariffs on Mexico and Canada. Cisco says it has spent a significant amount of time planning for the possibility of tariffs. It is prepared to take actions to mitigate the impact if and when tariffs go into effect.
Overall, this was a very good quarter for Cisco. That was particularly evident in the strong order growth numbers, including its expectations to exceed $1 bln in AI infrastructure orders in FY25. However, we are not seeing a huge move today. We think a good quarter/guidance was priced into the shares somewhat, given its 35% move since mid-August. However, the stock remains in a solid uptrend.
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