| | | Market Snapshot
| Dow | 41938.45 | -696.75 | (-1.63%) | | Nasdaq | 19161.63 | -317.25 | (-1.63%) | | SP 500 | 5830.66 | -87.59 | (-1.48%) | | 10-yr Note | -29/32 | 4.78 |
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| | NYSE | Adv 527 | Dec 2194 | Vol 106 mln | | Nasdaq | Adv 1046 | Dec 3351 | Vol 8.6 bln |
Industry Watch
| Strong: Energy |
| | Weak: Information Technology, Real Estate, Financials, Consumer Discretionary, Communication Services, Materials |
Moving the Market
-- Reacting to stronger-than-expected December Employment Situation Report
-- Worries about sticky inflation fueled by a strong labor market and earnings growth
-- Concerns that Fed won't cut rates for extended period
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Closing Summary
10-Jan-25 16:30 ET
Dow -696.75 at 41938.45, Nasdaq -317.25 at 19161.63, S&P -87.59 at 5830.66
[BRIEFING.COM] Major equity indices registered significant declines today, driven by a surge in market rates following the release of this morning’s labor market data. The S&P 500 fell 1.5% and the Nasdaq Composite declined by 1.6%. The Dow Jones Industrial Average fell nearly 700 points, or 1.6%.
The Employment Situation report for December, released at 8:30 ET, showed nonfarm payrolls exceeding expectations with an increase of 256,000, while the unemployment rate edged lower to 4.1% from 4.2%, and the year-over-year growth in average hourly earnings was a solid 3.9%. The market’s negative sentiment following the report was largely attributed to concerns over persistent inflationary pressures, fueled by a robust labor market and earnings growth, alongside worries that the Federal Reserve may maintain higher interest rates for an extended period.
The 10-year Treasury yield, which was at 4.70% prior to the report, jumped to 4.78% in its aftermath before settling at 4.78%, up nine basis points from yesterday. The 2-year yield, which is most sensitive to changes in the fed funds rate, rose from 4.29% just before the report to 4.40%, an increase of 13 basis points from yesterday.
The broader market experienced widespread losses, with ten of the 11 S&P 500 sectors in the red. Market breadth reflects this downside skew, with decliners outpacing advancers by a 4-to-1 margin on the NYSE and by a 3-to-1 margin on the Nasdaq.
Some individual stocks outperformed, driven by specific catalysts. Delta Air Lines (DAL 66.95, +5.53, +9.0%) gained 9.7% following stronger-than-expected earnings results, while Walgreens Boots Alliance (WBA 11.76, +2.54, +27.6%) surged 27.6% after surpassing earnings estimates. Taiwan Semiconductor Manufacturing Company (TSM 208.37, +1.25, +0.6%) reported record revenues for the fourth quarter, leading to a 0.6% rise in its stock price.
Energy stocks were another bright spot, leading the S&P 500 energy sector to close 0.3% higher, driven by commodity prices. WTI crude oil futures rose 3.6% to $76.63/bbl and natural gas futures jumped 4.6% to $3.40/mmbtu.
- S&P Midcap 400: -0.7% YTD
- Nasdaq Composite: -0.8% YTD
- S&P 500: -0.9% YTD
- Russell 2000: -1.8% YTD
- Dow Jones Industrial Average: -1.4% YTD
Reviewing today's economic data:
- December Nonfarm Payrolls 256K (Briefing.com consensus 154K); Prior was revised to 212K from 227K,December Nonfarm Private Payrolls 223K (Briefing.com consensus 140K); Prior was revised to 182K from 194K,
- December Avg. Hourly Earnings 0.3% (Briefing.com consensus 0.3%); Prior 0.4%, December Unemployment Rate 4.1% (Briefing.com consensus 4.2%); Prior 4.2%, December Average Workweek 34.3 (Briefing.com consensus 34.3); Prior 34.3
- The key takeaway from the report for the market is that it was perhaps too good, which makes it think one of two things, if not both: the Fed may have made a mistake cutting rates as aggressively as it did at the end of 2024, thereby fueling the prospect of sticky inflation because the labor market is still strong, and there isn't going to be another rate cut for an extended period.
- January Univ. of Michigan Consumer Sentiment - Prelim 73.2 (Briefing.com consensus 73.5); Prior 74.0
- The key takeaway from the report is that consumers' worries about the future path of inflation increased, which is not what the Fed wants to hear, especially as plans to implement new tariffs loom on the near horizon.
Looking ahead, Monday's calendar features the December Treasury Budget at 2:00 p.m. ET.
Treasuries settle with losses after jobs report
10-Jan-25 15:40 ET
Dow -710.10 at 41830.17, Nasdaq -327.84 at 18984.42, S&P -94.49 at 5795.86
[BRIEFING.COM] The major indices moved toward session lows in recent action.
Treasuries settled with losses after a strong jobs report for December. The 10-yr yield jumped nine basis points to 4.78% and the 2-yr yield surged 13 basis points to 4.40%. The 10-yr yield surged 18 basis points this week and the 2-yr yield settled 12 basis points higher than last Friday.
Looking ahead, Monday's calendar features the December Treasury Budget at 2:00 p.m. ET.
Small caps underperform
10-Jan-25 15:10 ET
Dow -640.12 at 41900.17, Nasdaq -265.45 at 19046.81, S&P -103.88 at 5786.47
[BRIEFING.COM] The Nasdaq Composite trades 1.3% lower and the S&P 500 trades 1.3% lower while the Russell 2000 underperforms, showing a 2.1% decline.
The Nasdaq is on track to close 2.1% lower this week and the S&P 500 is 1.4% lower than last Friday. The small cap Russell 2000 trades 3.4% lower than last week.
Separately, some big banks report earnings next week, including JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), Goldman Sachs (GS), and Bank of America (BAC).
S&P 500 down amid broad market declines; Bunge up after WASDE report
10-Jan-25 14:30 ET
Dow -583.69 at 42051.51, Nasdaq -251.77 at 19227.10, S&P -72.51 at 5845.74
[BRIEFING.COM] The S&P 500 (-1.23%) is down about 73 points this afternoon, technically making it the "best" performing major average with more aggressive losses being had elsewhere.
Briefly, S&P 500 constituents PG&E (PCG 17.28, -1.97, -10.23%), ON Semiconductor (ON 54.63, -3.68, -6.31%), and Allstate (ALL 180.08, -11.72, -6.11%) pepper the bottom of the standings. PCG and ALL are lower in part due to the ongoing California wildfires, while ON caught a downgrade to Hold at Truist this morning citing demand concerns
Meanwhile, Missouri-based agribusiness firm Bunge (BG 81.62, +4.24, +5.48%) is one of the average's better performers following today's WASDE report.
Gold adds to weekly gains on Friday
10-Jan-25 14:00 ET
Dow -491.19 at 42144.01, Nasdaq -195.72 at 19283.15, S&P -57.27 at 5860.98
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-1.00%) is down about 195 points, a hair better than half an hour ago.
Gold futures settled $24.20 higher (+0.9%) to $2,715.00/oz, ending up +2.3% this week; the yellow metal bounced on Friday, aided in part by policy uncertainty and inflation fears.
Currently, the U.S. Dollar Index is now up about +0.5% to $109.70.
Constellation Brands wobbles and sinks to multi-year lows after rough Q3 earnings report (STZ)
Alcoholic beverage company Constellation Brands (STZ) is giving its shareholders a headache today as its stock plunges to multi-year lows after issuing a disappointing 3Q25 earnings report that included its first quarterly yr/yr revenue decline in nearly two years. Making matters worse, the company cut its FY25 sales forecasts in both the Beer and Wine & Spirits businesses, while also reducing the low end of its EPS guidance range.
What's especially discouraging is that STZ's stalwart Beer business, which has helped to soften the blow from a persistently weak Wine & Spirts business, is losing some steam. The company's Mexican beer brands, including Modelo Especial and Corona Extra, have carried the company through a painful and ongoing reshuffling of brands in Wine & Spirits, but that crutch is starting to show some cracks.
- While depletion growth for Beer improved to 3.2% from 2.4% last quarter as Modelo Especial maintained its position as the top brand in terms of dollar sales, operating margin contracted by 60 bps to 37.9%. This was partly driven by increased marketing spend, indicating that STZ is having to ramp up advertising investments as industry conditions become even more challenging.
- On that note, STZ and other alcoholic beverage companies such as Anheuser-Busch (BUD), Molson Coors (TAP), and Boston Beer Company (SAM), took a hit on January 3 when the U.S. Surgeon General issued an advisory that linked alcohol use with cancer risks. That advisory also called for more warning labels on alcoholic beverages. This potential headwind, combined with the subdued spending and value-seeking behaviors from consumers that STZ CEO Bill Newlands highlighted in the Q3 earnings press release, factored into the company lowering its Beer net sales growth guidance to 4-7% from 6-8% for FY25.
- Meanwhile, STZ continues to spin its wheels in the Wine & Spirits business, which can't seem to find any traction despite the company's efforts to reshape the product portfolio. Over the past several years, STZ has repositioned the business to focus on premium and fine wine and craft spirts. Divesting mainstream and lower-end brands, such as its recent decision to sell its SVEDKA brand to Sazerac, have played a major role in this strategy.
- Shareholders have been waiting for signs that this premiumization strategy will bear some fruit, but that didn't come to pass once again in Q3. Depletions in Wine & Spirits decreased by 4.3% and shipments sank by 16.4% to 5.1 mln, driven by weaker consumer demand and continued retailer inventory destocking across most price points in the U.S. wholesale market. Due to a 14% drop in net sales, operating margin contracted by 333 bps to 22.1%, even as STZ saw decreases in COGS and SG&A expense.
- Like the Beer segment, STZ lowered its organic net sales outlook for Wine & Spirits, forecasting a decline of 5-8% compared to its prior outlook for a decline of 4-6%. With the company facing pressures across both business lines, it also cut its FY25 EPS guidance to $13.40-$13.80 from $13.60-$13.80.
STZ's business has been a mixed picture for quite some time with its Mexican beer portfolio leading the way, but now macroeconomic and industry-related headwinds have strengthened to the point that even its sturdy beer business is starting to wobble. The hoped-for turnaround in the Wine & Spirits business remains elusive, adding to shareholders' frustrations.
Wayfair exits Germany as it shifts attention to its remaining three international markets (W)
Wayfair (W -1%) is pulling the plug on its operations in Germany, announcing it will exit the region immediately, resulting in around 730 employees being shown the door. The e-commerce furniture retailer did note that around half of the positions in Germany would relocate to other corporate offices. The move comes amid stubbornly challenging economic conditions in the country alongside limited brand awareness and a lack of maturity of its offerings relative to other markets.
While not a total shock given that Wayfair has touched on the ailing demand in Germany in recent earnings calls, the company did mention in September that it believed Germany could ultimately perform similarly to the upbeat performances in Canada and the U.K. Wayfair added that Germany was an important area for it to continue to pursue and did not see a factor underlying why margins across its international business could not eventually resemble its U.S. business margins.
Nevertheless, Wayfair's overarching objective was driving adjusted EBITDA growth over time. As such, it continued to emphasize cost actions across its overall business, with impacts reaching its international business.
- In a message from Wayfair CEO Niraj Shah today, the company noted that a recent assessment found that achieving market-leading growth in Germany remained a costly endeavor that had become increasingly lagging behind the potential returns it sees in other areas. As such, Wayfair is shifting its focus to its remaining international markets, including the U.K., Canada, and Ireland.
- Last month, management noted that it built up Wayfair into a household brand across Canada and the U.K., perhaps signaling that Ireland could endure the same fate as Germany if growth does not pick up there. However, the company rolled out its offerings to Ireland less than three years ago, unlike Germany, where Wayfair established a presence around 15 years ago. Therefore, Wayfair will likely give Ireland ample time to build up brand awareness.
- Only around an eighth of Wayfair's total revenue stems from markets outside the U.S., keeping much of the company's attention on domestic growth. Unfavorable economic conditions in Germany can be seen across the U.S. as sales struggle to stay in positive territory. In Q3, U.S. net revs edged 2.3% lower yr/yr. Mr. Shah commented that while the overall economy is performing better than expected, the housing market remains stagnant, producing a knock-on effect in the home furnishing market.
Moving ahead without Germany, Wayfair is focused on investing in its remaining international markets, expanding its physical retail footprint following the opening of its first shop in Illinois last year, and leaning on technology improvements to enhance the consumer experience and ultimately return to delivering consistent profitability. However, with the Federal Reserve signaling fewer rate cuts in 2025, Wayfair's ambitions could hit a wall, especially if inflationary pressures, which have been hindering discretionary demand, do not ease more aggressively.
Delta Air Lines flies by Q4 estimates and issues upbeat outlook, lifting stock to record highs (DAL)
Fueled by one of the busiest holiday travel seasons in U.S. history -- December 1, 2024 saw a record 3.09 mln travelers go through TSA screening -- Delta Air Lines (DAL) flew past Q4 EPS and revenue estimates, setting a bullish tone for the commercial airline industry as the Q4 earnings season approaches. Strong results were already widely expected, though, after rivals American Airlines (AAL) and Southwest Air (LUV) raised their Q4 revenue outlooks in early December. With that in mind, the focal point mainly rested on the company's guidance, which was also quite upbeat, providing shares of DAL and those of its peers with a major boost.
- DAL experienced an acceleration in demand throughout the quarter and that momentum has continued into 2025. To put the robust demand environment into perspective, DAL noted that four of the top ten revenue days in its history occurred during November and December, with strength seen across both the leisure and corporate businesses. The company's upside 1Q25 revenue guidance of $13.44-$13.69 bln (growth of 7-9%) reflects its confidence that travel demand will remain strong in the seasonally slower quarter.
- Not only has demand strengthened, but capacity growth at DAL and throughout the industry has also decelerated, creating a more favorable pricing dynamic. In Q4, DAL's available seat miles grew by 5%, compared to a 15% jump in the year-earlier period. Accordingly, unit revenue continued its upward trajectory as adjusted TRASM edged higher by 0.4% versus last quarter's 3.6% yr/yr decline.
- At the same time, DAL's premiumization strategy is paying dividends. Staying true to recent form, premium revenue growth outpaced main cabin growth at 8% compared to 2%. Moving forward, expanding premium seats will be a center point of DAL's growth strategy. In fact, during its Investor Day on November 20, DAL stated that it expects total premium seats to exceed main cabin seats by 2027.
- Turning to expenses, the story is a little more mixed. On the positive side, fuel costs eased during Q4, declining by 18% yr/yr to $2.41 bln. However, the company's FY25 guidance for EPS greater than $7.35 fell a bit short of expectations, indicating that rising wages and the impact of slower capacity growth will put upward pressure on non-fuel unit costs. The good news is, DAL expects efficiency gains to partially offset these factors, resulting in low-single-digit growth for non-fuel unit costs in FY25.
The main takeaway is that business is booming for DAL with the airline achieving double-digit growth in corporate, while all three of its international geographies (Atlantic, Pacific, and Latin America) grew sequentially and outperformed internal expectations. Barring an economic downturn, DAL looks poised to deliver strong financial results in FY25 as it capitalizes on rising demand for premium travel products.
Walgreens Boots Alliance leaps to five-month highs on encouraging Q1 results (WBA)
Walgreens Boots Alliance (WBA +25%) has some pep in its step today after delivering back-to-back quarters of top and bottom-line upside in Q1 (Nov). The pharmaceutical retail chain also reiterated its FY25 (Aug) earnings outlook of $1.40-1.80, supported by benefits from cost management initiatives combined with relative strength in the company's U.S. pharmacy services businesses. WBA had a tough showing last year as shares plunged by over 65% as the company faced unfavorable retail conditions and an intensifying competitive landscape, prompting comprehensive turnaround initiatives under CEO Tim Wentworth, who took over in October 2023.
The front-end retail side of WBA remained under pressure in Q1 as consumers continued to shift their shopping behavior amid cumulative inflationary impacts. Last quarter, WBA announced the closing of approximately 1,200 of its roughly 8,000 stores over the next three years, with 500 shuttering in FY25, reflecting ailing retail demand. The silver lining was that WBA anticipated the move to be immediately accretive to profitability, helping offset weak front store volumes and supporting the company's reiterated EPS outlook for the year.
- In Q1, adjusted EPS fell by significantly less than analysts anticipated, sliding by 22.7% yr/yr to $0.51 on decent revenue growth of 7.6% to $39.5 bln, an acceleration from the +5.9% delivered last quarter. Growth was broad-based, similar to Q4 (Aug), underscoring further signs of demand stabilization.
- U.S. Retail Pharmacy was the laggard in Q1, posting sales growth of 6.6% on comps of +8.5%, which was mildly higher than last quarter. As has been the case over the past several periods, pharmacy sales shined, solely pushing the segment into positive growth territory by rising by 10.4% on comps of +12.7%, benefiting from higher branded drug inflation and prescription volume. On the flip side, retail sales fell by 6.2% on comps of -4.6%, highlighting a soft flu season and continued weakness in discretionary categories.
- The International segment took off from last quarter's modest 3.2% bump, accelerating to a 10.2% increase yr/yr. Boots UK pharmacy and retail comps rose by +10.9% and +8.1%, respectively, in Q1, a swift uptick compared to just two quarters ago when WBA was shopping this business.
- U.S. Healthcare, where WBA previously poured billions of dollars into VillageMD, CareCentrix, and Shields, growth unfolded across all divisions, leaping by 9%, 16%, and 30%, respectively. WBA remains amid a strategic and operational review toward simplifying its U.S. Healthcare portfolio and is underway with a sale process for VillageMD.
- Looking ahead, WBA expects growth in its U.S. Healthcare and International segments. However, it expects this to be offset by a decline in U.S. Retail Pharmacy, projecting a 4-5% drop in retail comps in FY25 compared to its previous forecast of a 2-3% drop, among a couple of other developments, including a higher tax rate.
The U.S. retail environment will likely remain challenging over the next several quarters, throwing obstacles in WBA's turnaround plan. Still, Q1 numbers were encouraging as back-to-back periods of growth reflect signs of stabilization, a much-needed development following such volatility over the past few years.
Acuity Brands edges higher after exceeding Q1 earnings estimates, raising FY25 guidance (AYI)
Acuity Brands (AYI) looks to shine today after exceeding Q1 (Nov) earnings estimates. The lighting and light control product supplier also boosted its adjusted operating margins in the quarter, benefiting from product vitality, price management, and productivity improvements. Additionally, AYI bumped its FY25 (Aug) guidance higher after incorporating its recently closed acquisition of QSC last week. However, a slight miss on its top line in the quarter may be keeping a lid on the stock today. It is important to note that shares gained roughly +50% in 2024, opening the door to modest profit-taking.
- Headline numbers were still solid in Q1. AYI expanded its bottom line by 7% yr/yr to $3.97, supported by a 20 bp bump in adjusted operating margins to 16.7%. Revenue inched 1.8% higher yr/yr to $951.6 mln, relatively consistent with AYI's +2.2% growth delivered last quarter. It also marked back-to-back quarters of positive growth following five straight periods of declining sales.
- Both AYI's segments experienced growth, with Lighting climbing by 1.1% to $886.0 mln while Intelligent Spaces swelled by $14.5% to 73.5 mln.
- In Lighting, AYI has stepped up its efforts to deliver a more consistent and predictable performance each quarter by leveraging technology that offers multiple functionalities. This allows distributors to carry fewer SKUs while providing more options for consumers.
- In Intelligent Spaces, AYI is capitalizing on customers opting for smarter working and living spaces. The company is also penetrating additional markets, adding capacity in the U.K., Asia, and Australia.
- In October, AYI purchased QSC, a cloud-manageable audio and video control platform, for $1.215 bln, representing around 14x QSC's estimated trailing twelve-month EBITDA. AYI anticipated the acquisition to be accretive to its FY25 adjusted EPS. With the purchase closing last week, AYI updated its FY25 forecast to include QSC, targeting revs of $4.3-4.5 bln, up from $3.9-4.1 bln and adjusted EPS of $16.50-18.00, up from $16.00-17.50.
AYI's Q1 report may not be shining all that brightly today. However, the company registered sound results that may be enough to keep its stock trending positively over the near term. The inclusion of QSC fortifies AYI's Intelligent Spaces segment, allowing the firm to now possess the opportunity to control the building and what happens in the space, bringing a unique combination of data collection and the ability to control that data. While Lighting revenue growth may remain sluggish over the next few quarters as the retail side drags its feet, management was optimistic about 2025 being a better year for the business than 2024, potentially supporting a string of positive yr/yr sales growth in the coming quarters.
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