Market Snapshot
| Dow | 42992.39 | -333.41 | (-0.77%) | | Nasdaq | 19760.52 | -298.33 | (-1.49%) | | SP 500 | 5970.56 | -66.73 | (-1.11%) | | 10-yr Note | -3/32 | 4.626 |
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| | NYSE | Adv 493 | Dec 2188 | Vol 758 mln | | Nasdaq | Adv 1191 | Dec 3108 | Vol 7.7 bln |
Industry Watch
| Strong: -- |
| | Weak: Information Technology, Consumer Discretionary, Communication Services, Utilities |
Moving the Market
-- Mega cap losses weighing down broader market
-- Mixed action in Treasuries keeping buying in check in equities
-- Below-average volume in seasonally slow period
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Closing Summary
27-Dec-24 16:20 ET
Dow -333.41 at 42992.39, Nasdaq -298.33 at 19760.52, S&P -66.73 at 5970.56
[BRIEFING.COM] The stock market struggled under broad selling interest on the final session of this holiday-shortened week. The Dow Jones Industrial Average, down more than 500 points at its low, settled 333 points below yesterday's close. The S&P 500 registered a 1.1% decline and the Nasdaq Composite closed 1.5% lower than yesterday.
The major indices still logged gains this week despite today's sell-off. The S&P 500 was 0.7% higher than last Friday and the Nasdaq Composite was 0.8% higher than last week.
Stocks from all areas of the market participated in the retreat, which was driven by some profit-taking activity as 2025 approaches. 28 of the 30 Dow components fell and all 11 S&P 500 sectors settled in the red. The energy sector was the top performer, closing fractionally lower, followed by utilities, which declined 0.3%.
Outsized declines in many mega caps were influential in overall performance, leading the heavily-weighted consumer discretionary (-1.9%), information technology (-1.5%), and communication services (-1.1%) sectors to close at the bottom of the pack. NVIDIA (NVDA 137.09, -2.84, -2.0%), Apple (AAPL 255.65, -3.37, -1.3%), Amazon.com (AMZN 223.79, -3.26, -1.4%), and Alphabet (GOOG 194.07, -3.03, -1.5%) were among the standouts in that regard.
The only other sector that declined 1.0% was real estate, clipped by rising rates. The 10-yr yield settled four basis points higher at 4.62% and the 2-yr yield settled unchanged at 4.33%.
Today's retreat coincided with a jump in the CBOE Volatility Index (16.10, +1.37, +9.3%) as investors have turned to the options market to hedge portfolios for increased volatility over the next 30 days, which some think could be accented with more concerted efforts to take capital gains.
- Nasdaq Composite: +31.4% YTD
- S&P 500: +22.7% YTD
- Dow Jones Industrial Average: +14.1% YTD
- S&P Midcap 400: +12.8% YTD
- Russell 2000: +10.7% YTD
Reviewing today's economic data:
- November Adv. Intl. Trade in Goods -$102.9 bln; Prior was revised to -$98.3 bln from -$99.1 bln
- November Adv. Retail Inventories 0.3%; Prior was revised to 0.2% from 0.1%
- November Adv. Wholesale Inventories -0.2%; Prior was revised to 0.1% from 0.2%
Looking ahead to Monday, market participants will receive the following economic data: December Chicago PMI (prior 40.2) at 9:45 a.m. ET; November Pending Home Sales (prior 2.0%) at 10:00 a.m. ET.
Treasuries settle with losses
27-Dec-24 15:40 ET
Dow -417.56 at 42908.24, Nasdaq -353.11 at 19705.74, S&P -82.26 at 5955.03
[BRIEFING.COM] The three major indices moved mostly sideways in recent action.
The 10-yr yield settled four basis points higher at 4.62% and the 2-yr yield settled unchanged at 4.33%. This price action leaves the 10-yr yield nine basis points higher this week and the 2-yr yield one basis point higher this week.
Looking ahead to Monday, market participants will receive the following economic data: December Chicago PMI (prior 40.2) at 9:45 a.m. ET; November Pending Home Sales (prior 2.0%) at 10:00 a.m. ET.
Stocks recover somewhat from lows, but still show solid losses
27-Dec-24 15:00 ET
Dow -281.33 at 43044.47, Nasdaq -296.02 at 19762.83, S&P -62.56 at 5974.73
[BRIEFING.COM] The major indices have slowly moved off their morning lows. The Dow Jones Industrial Average, down more than 500 points at its session low, trades about 280 points lower than yesterday's close now.
The Invesco S&P 500 Equal Weight ETF (RSP) traded down as much as 1.2%, but shows a 0.5% decline now.
Movement in the mega cap and chipmaker spaces continues to weigh down the broader market. The Vanguard Mega Cap Growth ETF (MGK) trades 1.5% lower and the PHLX Semiconductor Index (SOX) trades 0.8% lower.
S&P 500 down as Tesla, Super Micro, and Palantir slide; Lamb Weston leads gainers on Board news
27-Dec-24 14:30 ET
Dow -345.53 at 42980.27, Nasdaq -352.47 at 19706.38, S&P -74.02 at 5963.27
[BRIEFING.COM] The S&P 500 (-1.23%) is in second place on Friday afternoon, down about 74 points.
Briefly, S&P 500 constituents Tesla (TSLA 429.84, -24.29, -5.35%), Super Micro Computer (SMCI 32.08, -1.66, -4.92%), and Palantir Technologies (PLTR 78.71, -3.43, -4.18%) dot the bottom of the standings.
Meanwhile, Lamb Weston (LW 67.68, +2.40, +3.68%) is today's top gain getter after news that Jana Partners secured former Lamb Weston President Jeffery DeLapp as a Board nominee.
Gold futures slide amid rising treasury yields and lingering rate hike concerns
27-Dec-24 14:00 ET
Dow -374.88 at 42950.92, Nasdaq -322.14 at 19736.71, S&P -73.23 at 5964.06
[BRIEFING.COM] With about two hours to go on the week the tech-heavy Nasdaq Composite (-1.61%) is today's top lagging average.
Gold futures settled $22.00 lower (-0.8%) to $2,631.90/oz, ending up -0.5% on the week amid thin holiday trading. A lid was kept on losses, supported by safe-haven demand due to geopolitical tensions but were limited by expectations of a more hawkish Federal Reserve and fewer interest-rate cuts in 2025.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $108.03.
Grid Dynamics up sharply to a new 2-year high after being added to S&P SmallCap 600 (GDYN)
Grid Dynamics (GDYN +10%) is making a strong move following news last night it will join the S&P SmallCap 600 Index on January 2. We think joining the index is a feather in its cap and a sign that the company continues to grow nicely. The company provides technology consulting, assisting companies undergoing business transformations. Given the mounting popularity of AI, GDYN's services have enjoyed accelerating demand.
- Revenue growth has picked up in recent quarters. It flipped from three straight quarters of negative growth yr/yr to +7.4% in Q2 and +12.9% in Q3 to a record $87.4 mln, which was above prior guidance of $84-86 mln. The momentum is expected to continue in Q4 with GDYN expecting revs of $95-97 mln, which computes as +22-24% yr/yr. In fairness, some of this outsized growth is coming from recent acquisitions, JUXT and Mobile Computing. But it is still good growth.
- Similar to the first half of 2024, GDYN said that demand trends improved across its customer base in Q3. Customers are funding key programs and initiatives. At many customers, there is a sense of urgency to complete projects by the end of the year. Numerous initiatives that were held back due to the economic cycles are now being prioritized for completion.
- Taking a look back, GDYN said on the Q1 call that customers were focusing on sharing their outlooks and forecast plans but not aggressively spending. In Q2, customers were more willing to release budgets and implement their plans. GDYN believes the positive demand environment it saw in Q3 was a result of steady improvements over the past couple of quarters, and it expects that to continue into Q4 and beyond.
- GDYN noted that it set a new record for partnership-influenced revenue in Q3. Year-to-date, partnership revenue contribution accounted for 18% of total revenue. Also, its focus on hyperscalers has paid off with three of the largest being in the top five for partnership revenue. GDYN also has substantially expanded its AI portfolio and now has 30+ service offerings targeting Fortune 500 companies across various industries.
- In terms of the recent acquisitions, Grid Dynamics says each company brings a unique set of capabilities. JUXT is known for delivering complex end-to-end services, from design and user experience to deep functionality and ongoing managed services with a focus on banks and financial institutions. Mobile Computing is a leader in digital transformation with a suite of offerings, spanning industries including manufacturing, CPG and financial services.
Overall, investors are clearly pleased to see Grid Dynamics join the S&P SmallCap 600. Index funds will be required to buy GDYN, but the milestone also should raise the company's profile among investors generally. It also shows how much the company has grown in recent quarters with GDYN knocking on the door of reporting its first-ever $100 mln quarter. We think this bodes well for 2025 assuming demand continues to improve.
MillerKnoll earnings last week showed that the office furniture space needs time to recover (MLKN)
MillerKnoll (MLKN) has been weak since reporting Q2 (Nov) earnings last week. This report, along with weak results from peer Steelcase (SCS), have dampened our hopes of a near term recovery in the office furniture space. There has been a push by employers to get workers back into the office, but these reports signal that the near term outlook appears cloudy.
- MillerKnoll reported upside results for Q2. Revenue rose just 2.2% yr/yr to $970.4 mln, but that was better than expected. The main problem was pretty large downside adjusted EPS guidance for Q3 (Feb) although the revenue outlook was in-line. MLKN also lowered FY25 adjusted EPS guidance to $2.11-2.17. While orders are trending nicely ahead of last year, MLKN said they have recovered at a slower pace than expected at this point in the year.
- On the positive side, new product launches are performing above expectations and MLKN is seeing a very positive response to its promotions. Its Americas Contract segment continues to be a key growth driver with Q2 sales up 6.2% yr/yr organically to $504 mln. While new AC segment orders of $457 mln were lower than expected, they were up 4.9% on an organic basis. Order growth trends improved as the quarter progressed.
- Within the International and Specialty segment, sales grew 2.1% to $246 mln. MLKN continues to see strong order growth in the Middle East and parts of Asia. MLKN is seeing excitement build for its brands internationally. It recently opened its MillerKnoll flagship in London and it opened a new fulfillment center in Belgium. Turning to its Retail segment, sales declined 5.3% and -4% on an organic basis to $220 mln.
- MLKN also said it's paying very close attention to tariff proposals. It noted that it has managed through similar tariff policy changes in the past and is looking to mitigate if needed. This could include identifying alternative sources of supply, options for advanced purchasing and possible future price adjustments. On the other hand, the possible extension of the 2017 tax cuts could have a positive impact and in particular the reinstatement of bonus depreciation.
Q2 marked the second consecutive quarter where the stock has gapped lower on earnings. MillerKnoll concedes that macroeconomic improvement is progressing more slowly than expected, however, it is encouraged by many trends and is building momentum for 2HFY25. With that said, rates have been creeping back up in recent weeks, that could be a headwind heading into calendar 2025. It is likely just a matter of time before this industry turns around but it will take some time.
SkyWater Tech is a play on the trend toward moving chip manufacturing back into the US (SKYT)
SkyWater Technology (SKYT) has been making waves in recent weeks, including a big jump last week. Since it's not well known and it's a slow news day, we wanted to dive in a bit with SkyWater today. It is a technology foundry offering both advanced semiconductor process technology development as well as wafer manufacturing services. SkyWater is a pure-play semiconductor contract manufacturer, otherwise known as a foundry.
- What's unusual is that SkyWater is based in the US whereas most foundries operate in Asia. Given all the supply chain issues during the pandemic, there has been a big push to reshore chip production back in the US. The goal is to be less reliant on Asian foundries, not just on concerns of another pandemic, but also given the threat of tariffs, it makes sense to bring manufacturing back to the US.
- A big development in this area was the 2022 passage of the The CHIPS and Science Act, a federal law that authorizes roughly $280 bln to boost US production. It also includes 25% investment tax credits for manufacturing equipment. What makes SkyWater interesting is that it was created back in 2017 when it was spun out of Cypress Semi. This was before the CHIPS Act, and before it was cool to make chips in the US.
- SKYT has built a very strong Advanced Technology Services business. Think of this as a monetized R&D capability that allows SKYT to work with customers very early in the product development stage with the assurance that once their products move into production, SKYT can also make them in volume. SKYT does both embedded R&D as well as high-volume manufacturing in the same manufacturing facility. SkyWater serves the growing markets of aerospace & defense (A&D), automotive, biomedical, industrial and quantum computing.
- The stock has been making a strong move since it announced in early December that it signed a preliminary memorandum of terms (PMT) valued at up to $16 mln with the CHIPS for America program. This proposed funding would provide federal incentives to enhance production capabilities at SkyWater's Minnesota facility. These incentives will complement SkyWater's existing plans for customer-funded CapEx co-investments totaling $320 mln through 2026.
Looking ahead to 2025, SKYT is encouraged by a robust pipeline of secure aerospace & defense (A&D) demand, growing momentum across multiple commercial programs and the initial ramp of its advanced packaging business. Growth in its ATS segment is expected to be driven by strong continued momentum across various A&D programs and new well-funded commercial initiatives. SKYT expects these advancements to be bolstered by substantial new tooling capabilities funded by customers. Also, SKYT plans to accelerate its advanced packaging ATS development as it ramps its new fan-out platform.
Xometry making new highs since surprise profit in Q3; supply chain jitters fueling growth (XMTR)
Xometry (XMTR +5%) caught our attention this morning. There is not any news out, but the stock has been showing good momentum since its Q3 report in early November. The stock is trading at a new 52-week high today, so we wanted to take closer look to see what it driving the stock higher.
- This operator of an AI-powered online marketplace connecting buyers with suppliers of manufacturing services sees manufacturing as a massive, highly fragmented, and regionalized industry in need of efficiency. Xometry believes the industry is poised for increased digitization. Also, small- to medium-sized manufacturers face barriers to entry as they have to compete with larger manufacturers. Xometry sees an opportunity to help these smaller companies with their materials, financing and advertising.
- Xometry made its IPO debut pretty recently, in June 2021. Since going public, it has grown its revenue and gross margin rapidly. It has also gotten closer and closer to being adjusted EBITDA positive, which the company expects to accomplish in Q4. Annual revenue in recent years has grown impressively. Analysts expect 2024 revenue to come in around $543 mln then grow to $647 mln in 2025.
- The company has expanded its networks of both buyers and suppliers. It has also grown gross margin for its marketplace segment. When Xometry went public, gross margin was about 23.5% for marketplace and that increased to 33.6% in Q3. As such, even as it has grown revenue strongly, at very significant rates, the gross profit has actually grown even faster.
- Xometry is increasingly embedded in its customer supply chains, digitizing inefficient and cumbersome processes. Also, international growth has been a key catalyst. In Q3, international revenue grew 55% yr/yr, driven by strong growth in Europe. It is now approaching a $100 mln annual run rate vs $2 mln in 2020. Currently, 19% of total marketplace revenue is international and Xometry believes it can get that up to 30-40%, which is consistent with many other global online marketplaces.
- What really stands out is that Xometry has grown strongly despite a weak industrial macro picture. ISM data has been in contraction for 23 of the past 24 months. Despite that, Xometry posted 19% yr/yr revenue growth in Q3 to $141.7 mln. The company achieved this because it believes it is clearly gaining market share. Another factor is that awareness is still relatively small. However, that is changing as demonstrated by its customer growth.
- Another tailwind has been concerns about supply chains. With tariffs and geopolitical tensions, many customers have concerns about supply chains, particularly in Asia. Xometry helps by being in 16 localized marketplaces, including the US, Europe, Asia. If customers are looking to ensure that they can deliver their product to their end customers, Xometry Marketplace is a good way to protect their supply chain at no cost. Xometry gives them that redundancy and security that they need.
Overall, Xometry appears to be hitting more radar screens since its Q3 report. Analysts had been expecting a loss, but the company surprised the market with its first profitable quarter as a public company. That Xometry has been able to grow nicely despite a contracting industrial market is pretty impressive. And the potential upheaval of supply chains caused by tariffs should fuel more interest from customers.
Starbucks' recent declines slowing down as today's strike is expected to have limited impact (SBUX)
Union-related issues continue to brew at Starbucks (SBUX +1%), prompting a roughly 10% correction since last week. The Starbucks Workers Union, which was formed in late 2021, has over 11,000 organized workers across 535 company-owned stores in the U.S. However, by comparison, SBUX employs more than 200,000 people and operates over 10,000 stores in the U.S. Last week, the union stated that 98% of unionized workers voted to authorize a strike. The dates were set for between December 20 and today and were expected to affect over 300 stores nationwide by Christmas Eve.
Last night, SBUX provided an update on the strike, noting that only a small number of stores, around 60, were temporarily closed due to the union's actions. Management added that the strike could reach additional stores today. However, the company noted that 97-99% of its stores will continue to operate normally. As such, the strike is expected to have a limited impact on SBUX's overall operations.
- SBUX has not expressed much concern over the 4% of its U.S. stores where its employees have chosen to be represented by a union. The striking does add another headache that the company and its recently appointed CEO, Brian Niccol, must work through. However, we view union-related setbacks as mostly noise.
- Still, the noise coincides with macroeconomic headwinds that have kept a tight lid on recent growth. In Q4 (Sep), SBUX's North America and International comps contracted by 6% and 9%, respectively, while China comps (SBUX's second-largest market) fell by 14%. Mr. Niccol, who joined the company in early September, conceded that results were underwhelming, reinforcing his view that changes are needed, from menu simplification, removing excess consumer costs, and returning abandoned perks.
- SBUX's "Back to Starbucks" plan aims to take on these much-needed changes, ultimately targeting a return to sustainable growth domestically and abroad. SBUX's strategy involves meaningful investments in equipment, renovation, and marketing, which could weigh on the company's near-term bottom-line performance. However, investors remain excited over Mr. Niccol carrying over his success at Chipotle and Taco Bell. Shares remain over +10% higher since the announcement of his appointment as CEO.
A strike by unionized workers across a minuscule percentage of SBUX's total footprint in the U.S. is not expected to weigh materially on the company's operations. More stores could vote to unionize in the future. However, we view the problem as relatively minor. Instead, SBUX is up against a more significant hurdle: reenergizing demand. It is still early into Mr. Niccol's turnaround plan, so Q4 numbers provide more of a baseline from which SBUX should improve rather than signal a future trend. Therefore, Q1 (Dec) results in the coming months should offer more clues as to how "Back to Starbucks" is shaking out.
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