| | | Market Snapshot
| Dow | 42732.13 | +339.86 | (0.80%) | | Nasdaq | 19621.67 | +340.88 | (1.77%) | | SP 500 | 5942.47 | +73.92 | (1.26%) | | 10-yr Note | -3/32 | 4.60 |
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| | NYSE | Adv 2079 | Dec 659 | Vol 816 mln | | Nasdaq | Adv 3213 | Dec 1143 | Vol 8.2 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services, Utilities, Energy |
| | Weak: -- |
Moving the Market
-- Buy-the-dip interest
-- Gains in mega caps boosting index performance
-- Rising market rates not deterring equity market
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Closing Summary
03-Jan-25 16:35 ET
Dow +339.86 at 42732.13, Nasdaq +340.88 at 19621.67, S&P +73.92 at 5942.47
[BRIEFING.COM] The stock market was in rally-mode, benefitting from buy-the-dip interest after recent declines. The S&P 500 closed 1.3% higher than Thursday, but was 0.5% lower since the start of the Santa Claus rally period (last five trading sessions of the year and first two of the new year). The index settled just below its 50-day moving average (5,944).
Gains were broad based. Market breadth favored decliners by a roughly 3-to-1 margin at the NYSE and at the Nasdaq. 24 of the 30 Dow components registered gains and all 11 S&P 500 sectors closed higher. The consumer discretionary sector led the pack by a wide margin, jumping 2.4% thanks to a gain in Amazon.com (AMZN 224.19, +3.97, +1.8%) and a big move in Tesla (TSLA 410.44, +31.16, +8.2%). Shares of TSLA rebounded following its 20% drop from their December highs as of yesterday's close.
Other mega cap names outperformed the broader equity market, boosting index performance. The Vanguard Mega Cap Growth ETF (MGK) closed 1.7% higher.
Apple (AAPL 243.36, -0.49, -0.2%) was an exception, extending declines related to iPhone discounts and sliding demand in China.
Shares of US Steel (X 30.76, -1.84, -5.6%) also went against the upside grain, sliding after the White House confirmed that President Biden will block the Nippon Steel takeover. Nippon Steel Corporation and US Steel released a statement condemning the U.S. Government’s decision to block proposed acquisition of US Steel, calling it unlawful.
The 10-yr yield settled two basis points higher at 4.60% and the 2-yr yield settled three basis points higher at 4.28%.
- Russell 2000: +1.7% YTD
- Nasdaq Composite: +1.6% YTD
- S&P 500: +1.0% YTD
- S&P Midcap 400: +1.0% YTD
- Dow Jones Industrial Average: +0.4% YTD
Reviewing today's economic data:
- The December ISM Manufacturing Index checked in at 49.3% (Briefing.com consensus 48.5%) versus 48.4% in November. The dividing line between expansion and contraction is 50.0%, so the December reading suggests manufacturing sector activity contracted versus the prior month but at a slower pace. This was the ninth straight month (and 25th out of 26) that economic activity in the manufacturing sector contracted.
- The key takeaway from the report is that manufacturing sector activity overall continued in a state of contraction, although the pace of contraction slowed at the same time the prices index picked up.
- EIA Natural Gas Inventories -116 bcf (prior -93 bcf)
Looking ahead, market participants receive the following economic data on Monday: December S&P Global US Services PMI - Final at 9:45 ET and November Factory Orders at 10:00 ET.
Treasury yields settle higher
03-Jan-25 15:35 ET
Dow +332.95 at 42725.22, Nasdaq +320.44 at 19601.23, S&P +71.79 at 5940.34
[BRIEFING.COM] The S&P 500 remains just below its 50-day moving average ahead of the close.
The 10-yr yield settled two basis points higher at 4.60% and the 2-yr yield settled three basis points higher at 4.28%.
Looking ahead, market participants receive the following economic data on Monday: December S&P Global US Services PMI - Final at 9:45 ET and November Factory Orders at 10:00 ET.
Stocks move sideways at session highs
03-Jan-25 15:00 ET
Dow +293.63 at 42685.90, Nasdaq +323.17 at 19603.96, S&P +70.60 at 5939.15
[BRIEFING.COM] The major indices moved mostly sideways near session highs over the last half hour. The S&P 500 traded above its 50-day moving average (5,944) in recent trading.
Small and mid cap stocks are coming along for the upside ride. The Russell 2000 trades 1.5% higher and the S&P Mid Cap 400 shows a 1.3% increase.
Market breadth reflects broad buying interest. Advancers lead decliners by a roughly 3-to-1 margin at both the NYSE and at the Nasdaq.
Separately, Rep. Mike Johnson (R-LA) was elected Speaker of the House after two Republican holdouts switched votes to Mr. Johnson. Stocks didn't react much to the news.
S&P 500 rises 1.3% led by Super Micro Computer, Vistra, and Jabil; Dollar Tree lags
03-Jan-25 14:30 ET
Dow +363.17 at 42755.44, Nasdaq +335.46 at 19616.25, S&P +76.36 at 5944.91
[BRIEFING.COM] The S&P 500 (+1.30%) is in second place on Friday afternoon, albeit up about 76 points on the day.
Briefly, S&P 500 constituents Super Micro Computer (SMCI 32.36, +2.31, +7.69%), Vistra Corp. (VST 161.33, +11.67, +7.80%), and Jabil (JBL 150.77, +7.94, +5.56%) pepper the top of the standings. VST is higher as the company is seen as a beneficiary of President Biden's final rule for 45V Clean Hydrogen Production Tax Credit, while JBL gains after news that Amazon.com NV Investment Holdings was issued a warrant to acquire up to 1,158,539 shares of the company.
Meanwhile, Dollar Tree (DLTR 72.74, -3.73, -4.87%) is at the bottom of the average.
Gold trims weekly gains on Friday
03-Jan-25 14:00 ET
Dow +318.55 at 42710.82, Nasdaq +323.10 at 19603.89, S&P +71.22 at 5939.77
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+1.68%) is up about 323 points today, hovering just off HoDs.
Gold futures settled $14.30 lower (-0.5%) to $2,654.70/oz, ultimately ending +0.9% higher on the week as the yellow metal benefits a bit from seasonal demand.
Currently, the U.S. Dollar Index is down today about -0.2% to $109.00.
Rivian Automotive floors it today following upbeat Q4 production and delivery numbers (RIVN)
Rivian Automotive (RIVN +22%) is flooring it today, moving to its best levels since July following uplifting Q4 production and delivery numbers. The electric truck and SUV maker produced 12,727 vehicles and delivered 14,183 during the quarter, ending FY24 with 49,476 vehicles produced and 51,579 delivered. The company's FY24 numbers were consistent with its guidance of 47,000-49,000 vehicles produced and 50,500-52,000 delivered.
- Why would meeting expectations evoke such an energetic response today? The market was forecasting weaker results. Street estimates pegged RIVN's Q4 deliveries at under 14,000, ending the year at around 50,900, well below RIVN's actual delivery figure. Production results also crushed estimates, which were similarly bearish due to supply shortages RIVN touched on in October.
- Following underwhelming Q3 production and deliveries, RIVN slashed its FY24 production target to 47,000-49,000 from 57,000. The supply shortages stemmed from RIVN's Gen 2 relaunch. Over half of the parts in these new models were changed, prompting RIVN to lean on different suppliers. Given this context, topping the high end of its lowered guidance by 476 units is encouraging enough to light a match under the stock today.
- At the same time, RIVN commented today that a component shortage impacting its ability to produce Enduro motors will no longer constrain its future production. In early November, RIVN mentioned that its team was focused on addressing this component shortage. Clearing this overhang so quickly is another underlying factor in today's upward momentum.
With a significant component shortage out of the way and RIVN demonstrating its ability to shift gears quickly and exceed its lowered FY24 production and delivery guidance, market participants are excited over RIVN's potential in 2025. RIVN has a massive opportunity ahead with its joint venture with Volkswagen AG (VWAGY). The up to $5.8 bln in proceeds RIVN expects to receive from the joint venture combined with its $6.7 bln in cash provide the company with ample funds to power its growth roadmap, including the ramp of R2, its midsize SUV starting at under $50,000, which is expected to be released in 2026.
Nevertheless, RIVN has run into many speedbumps in the past, which can lead to heightened uncertainty and performance variability each quarter. Furthermore, with the Federal Reserve signaling fewer-than-anticipated rate cuts in 2025, financing costs may remain an issue. RIVN's vehicles are typically priced above $70,000, prompting consumers to lean on financing options. Lastly, investors may want profitability to improve, especially with RIVN projecting a modest GAAP gross profit in Q4. Hiccups in improving its bottom line could disappoint investors.
TreeHouse Foods closes on private label tea company, reaffirmed Q4 guidance (THS)
TreeHouse Foods (THS) is trading roughly flat after completing its previously announced deal to acquire Harris Tea, a private brand tea manufacturer. TreeHouse, a huge supplier of private label food and beverages, also reaffirmed its FY24 guidance, including the expectation of sequential improvement in volume growth and profit margin in Q4. THS typically reports Q4 results in mid-February.
- Harris Tea was not a large deal with a $205 mln price tag. However, the deal brings aboard another fast-growing, margin-accretive business. It also gives TreeHouse an immediate leadership position in private label tea. The company cited Harris Tea's capabilities in tea sourcing, blending and packing, as well as its scale and customer relationships fitting TreeHouse's strategy well. THS has been focusing its M&A strategy more on higher growth and higher margin targets in recent years and Harris Tea is a good example.
- TreeHouse has been struggling a bit lately. It recently had a voluntary recall of frozen griddle products and it temporarily closed its Ontario facility to conduct a deep cleaning. It expects the facility to resume manufacturing in Q1.
- In addition, the company reported a shortfall in Q3 sales in mid-November. Consumer trends in THS's categories saw a significant deceleration as the quarter progressed. As such, the stock gapped lower in November on the Q3 report as investors were surprised to see THS miss on revs and guide Q4 revs below analyst expectations.
- With consumers focusing more on value, you would think private label would be doing well. THS said that overall private brand industry dynamics remain favorable when compared to historic levels. Also, price gaps are healthy and private brands continue to take share. However, given the lower consumption environment, the share gains are coming from a smaller pie. Another factor is that promotions are still below historic levels seen prior to the pandemic.
- Its organic net sales trend improved in Q3. However, results were impacted by weakening consumer trends across its industry and specifically TreeHouse's categories as Q3 progressed. Also, Hurricane Helene caused some delays in shipping volume out of its North Carolina distribution center. Despite the headwinds, THS reported strong adjusted gross margin due to savings associated with its supply chain initiatives.
Overall, we think Harris Tea will be a nice addition to growth and margins over the long term. In the near term, we were pleased to see THS reaffirming guidance for Q4 following the miss and guide-down last quarter. With that said, we think the focus in the Q4 report will be the Q1 guidance. Hopefully, THS will be able to turn the corner and improve results in 2025.
Resources Connection starts new year off on promising note after posting upside Q2 results (RGP)
Consulting and workforce staffing company Resources Connection (RGP) endured a very difficult 2024 that saw its stock plunge by nearly 40%, but the company is off to a promising start in 2025 after delivering better-than-expected Q2 results. While the demand environment remained choppy during the quarter, RGP achieved sequential improvements across several key metrics, including revenue, gross margin, adjusted EBITDA, and SG&A expense. A combination of macro-related factors, such as interest rate cuts and the removal of uncertainty surrounding the election, and company-specific actions are driving the stronger results.
- On December 6, RGP reaffirmed its Q2 guidance of revenue of $135-$140 mln and gross margin of 36-37%. Bolstered by a rebound in Europe, which experienced an 18% qtr/qtr jump in revenue, and the positive impact of price increases in the Consulting segment, the company exceeded the high end of these guidance ranges. Specifically, revenue grew 6.3% qtr/qtr to $145.6 mln, while gross margin expanded by 200 bps qtr/qtr to 38.5%.
- Amid this challenging business climate, RGP implemented a reorganization in October that resulted in the creation of three separate business units: On-Demand, Consulting, and Outsourced Services. The aim of this initiative is to diversify the company's offerings, enabling it to perform well in both good times and bad, and to expand its total addressable market and cross-selling opportunities. CEO Kate Duchene stated that it successfully executed its diversification strategy in Q2 as clients looked to transform their businesses in the areas of supply chain management, human resources, technology, and finance.
- Simultaneously, RGP has streamlined its business and removed costs, including through workforce reductions. When the company reaffirmed its Q2 guidance in December, it also announced job cuts that are expected to generate cost savings of $4-$5 mln in 2H25. This followed a restructuring plan that was initiated in October 2023, which helped push SG&A expenses lower by 3.2% in Q2 to $51.3 mln. Along with the sequential improvement in revenue, the lower costs drove adjusted EBITDA higher by 322% qtr/qtr to $9.7 mln.
- Although RGP didn't offer formal guidance, it did provide some encouraging commentary regarding its outlook. For instance, CFO Bhadresh Patel stated that the company's pipeline is stable with a steady flow of opportunities, and that he remains cautiously optimistic about the macro environment. Furthermore, he noted that RGP is achieving notable rate increases, highlighting the improving demand for its services.
The main takeaway that while business conditions are still far from optimal, demand is gradually improving and RGP's reorganization and streamlining actions are now paying dividends.
Apple tries to snap its losing streak following iPhone discounts and sliding demand in China (AAPL)
Since reaching record highs on December 26, shares of Apple (AAPL) have suffered a string of losses, pulling back by over 6%. Yesterday's decline was the iPhone maker's single worst day since October. The mounting concern stems partly from cooling demand in the company's second-largest region, China, comprising an estimated 15% of annual sales.
Yesterday, Reuters reported that AAPL was offering discounts on iPhones, running a four-day promotion starting tomorrow. The discounts are relatively minor, ranging from around $55-110 depending on the iPhone 16 model and payment method. Nevertheless, AAPL seldom slashes prices on its latest iPhone lineup, particularly after just three months since launch.
While competition is a factor in AAPL's discounting as prominent China-based players, like Huawei and Xiaomi, offer appealing alternatives to the iPhone, the economic situation in China is producing meaningful headwinds. Today, Reuters noted that smartphone shipments to China from non-China brands, including AAPL, Samsung (SSNLF), and Google (GOOG), declined by 47% yr/yr in November, extending the roughly 44% drop in October. With AAPL as the dominant foreign OEM in China, much of the decline could be attributed to the company. Meanwhile, Bloomberg reported that China is looking to subsidize purchases of smartphones, extending its existing trade-in program that covers appliances and vehicles to smartphones, smartwatches, and tablets.
- AAPL's recent discounts, albeit rare, are becoming more common. In January last year, the NY Times reported that AAPL was trimming iPhone prices by up to around $70. At the time, while the Chinese economy was shaking, coming off a 3% drop in overall smartphone sales in 2023, competition was the overarching concern. This development intensified in May when AAPL ran discounts of up to over $300 on select iPhone models to better lure customers who were being pulled away by Huawei's newest premium smartphones released in the month prior.
- The lowered prices in 2024 may have eventually spurred higher shipments in China. After enduring a 37% contraction in sales in China during the first two months of 2024, reports noted that AAPL posted a 12% jump in March. Furthermore, in May, foreign smartphone shipments surged by nearly 40% yr/yr, largely reflecting reenergized demand for the iPhone following significant price cuts.
- AAPL's China revenue improved steadily throughout 2024, recently coming in relatively flat yr/yr in Q4 (Sep). AAPL mentioned that improving FX headwinds provided decent help. The company's installed base of active devices, which reached an all-time high, also played a role. However, with AAPL now turning to a similar playbook it deployed in 2024, investors are worried that the company's sales momentum in China has hit a wall. For comparison, AAPL saw constant currency sales growth in China in 4Q23, a few months before enacting price cuts.
Surrounding AAPL's China-related woes in 2024, a slowing economy took a backseat to intensifying competition. This year, it looks like both headwinds will be front and center. However, discounts did spur sales growth for AAPL last year. With China expanding its stimulus measures, perhaps price cuts will be sufficient to spur demand again in 2025.
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