Market Snapshot
| Dow | 42297.12 | +358.67 | (0.86%) | | Nasdaq | 19088.10 | -73.53 | (-0.38%) | | SP 500 | 5839.84 | +9.18 | (0.16%) | | 10-yr Note | -3/32 | 4.80 |
|
| | NYSE | Adv 1482 | Dec 1217 | Vol 1.0 bln | | Nasdaq | Adv 1851 | Dec 2533 | Vol 7.9 bln |
Industry Watch
| Strong: Energy, Materials, Health Care, Industrials, Real Estate, Financials, Consumer Staples |
| | Weak: Information Technology, Communication Services, Utilities |
Moving the Market
-- Rising Treasury yields still keeping buying in check in equities
-- Worries about sticky inflation and the Fed staying higher for longer remain in play
-- Jump in oil prices contributing to inflation concerns
-- DJIA outperforming due to big gain in heavily-weighted component UnitedHealth (UNH)
|
Closing Summary
13-Jan-25 16:35 ET
Dow +358.67 at 42297.12, Nasdaq -73.53 at 19088.10, S&P +9.18 at 5839.84
[BRIEFING.COM] The stock market started the week on a mixed note. The Nasdaq Composite (-0.4%) closed lower, clipped by losses in the mega cap space, while the S&P 500 (+0.2%), Russell 2000 (+0.2%), and Dow Jones Industrial Average (+0.9%) closed higher.
Buying picked up in the afternoon, but the overall vibe in the stock market was negative in the early going. The downside bias was related to rising market rates and ongoing concerns about inflation. The 10-yr yield rose another three basis points today to 4.80% and the 2-yr yield settled unchanged at 4.40%. The 30-yr bond yield settled just below 5.00%, up two basis points to 4.99%.
Rising oil prices ($78.99/bbl, +2.67, +3.6%) and the New York Fed's Survey of Consumer Expectations stoked the market's fears about higher inflation for longer. Expectations were unchanged at 3.0% at the one-year ahead horizon and increased to 3.0% from 2.6% at the three-year-ahead horizon. They declined to 2.7% from 2.9% at the five-year-ahead horizon.
There was no specific catalyst to account for the improvement in the stock market. Early on, market breadth favored decliners by a 3-to-2 margin at the NYSE and by a better than 2-to-1 margin at the Nasdaq. At the close, advancers led decliners by an 11-to-10 margin at the NYSE and decliners led advancers by a 4-to-3 margin at the Nasdaq.
Outsized moves in the equity market were reserved for individual names with specific news items. UnitedHealth (UNH 541.14, +20.45, +3.9%) jumped in response to news that the U.S. proposed a 4.3% increase to Medicare Advantage plan payments, a $21 billion boost to insurers for Medicare payments, according to Bloomberg.
Moderna (MRNA 35.15, -7.10, -16.8%) was one of the biggest individual losers after slashing its FY25 revenue outlook.
Bank stocks outperformed in front earnings reports this week from big names in the sector. The SPDR S&P Bank ETF (KBE) gained 1.2%.
There was no US economic data of note today.
- S&P Midcap 400: +0.1% YTD
- Nasdaq Composite: -1.2% YTD
- S&P 500: -0.8% YTD
- Russell 2000: -1.6% YTD
- Dow Jones Industrial Average: -0.6% YTD
Looking ahead, Tuesday's economic lineup features:
- 6:00 ET: December NFIB Small Business Optimism (prior 101.7)
- 8:30 ET: December PPI (Briefing.com consensus 0.3%; prior 0.4%) and Core PPI (Briefing.com consensus 0.2%; prior 0.2%)
Treasury yields settle higher; 30-yr yield at 4.99%
13-Jan-25 15:35 ET
Dow +306.60 at 42245.05, Nasdaq -134.55 at 19027.08, S&P -2.61 at 5828.05
[BRIEFING.COM] The major indices trade near session highs ahead of the close. The Nasdaq Composite is still 0.7% lower and the S&P 500 trades down about two points while the Dow Jones Industrial Average trades up 0.7%.
The 10-yr yield rose another three basis points today to 4.80% and the 2-yr yield settled unchanged at 4.40%. The 30-yr bond yield settled just below 5.00%, up two basis points to 4.99%.
Looking ahead, Tuesday's economic lineup features:
- 6:00 ET: December NFIB Small Business Optimism (prior 101.7)
- 8:30 ET: December PPI (Briefing.com consensus 0.3%; prior 0.4%) and Core PPI (Briefing.com consensus 0.2%; prior 0.2%)
Nasdaq lags, weighed down by mega caps
13-Jan-25 15:10 ET
Dow +306.34 at 42244.79, Nasdaq -143.30 at 19018.33, S&P -2.26 at 5828.40
[BRIEFING.COM] The S&P 500 is fractionally lower, just two points below its prior close. The Nasdaq Composite shows a 0.7% decline, weighed down by mega caps and chipmakers.
The Vanguard Mega Cap Growth ETF (MGK) shows a 0.8% decline and the PHLX Semiconductor Index (SOX) trades 0.5% lower.
Separately, KB Home (KB 60.52, +1.44, +2.4%) trades up ahead of its earnings report this afternoon.
S&P 500 dips slightly; Edison slumps on legal woes, CF Industries surges on upgrade
13-Jan-25 14:30 ET
Dow +242.48 at 42180.93, Nasdaq -168.70 at 18992.93, S&P -10.42 at 5820.24
[BRIEFING.COM] The S&P 500 (-0.18%) is in second place on Monday afternoon, holding slightly under Friday's close.
Briefly, S&P 500 constituents Edison (EIX 57.64, -7.36, -11.32%), Constellation Energy (CEG 286.18, -19.01, -6.23%), and Palantir Technologies (PLTR 63.79, -3.47, -5.16%) dot the bottom of the average. EIX slips as reports circulated that the company is to face lawsuits over its alleged role in the devastating Eaton fire in Southern California, CEG gives back a portion of last week's Calpine acquisition-fueled pop.
Meanwhile, CF Industries (CF 95.24, +6.48, +7.30%) is atop the standings after a Piper Sandler upgrade to Overweight citing a strong agriculture outlook.
Nasdaq dips as dollar strengthens, gold retreats amid treasury yield pressure
13-Jan-25 13:55 ET
Dow +268.95 at 42207.40, Nasdaq -141.96 at 19019.67, S&P -6.63 at 5824.03
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.74%) is today's top laggard among the major averages; trading is near HoDs across the board, though, ahead of the December Treasury Budget release, which is slated to be released this afternoon.
Gold futures settled $36.40 lower (-1.3%) to $2,678.60/oz, this as the U.S. dollar pushed to a two-year high aided in part by last week's strong jobs report that reinforced caution pertaining to the Fed's plans for rate cuts this year. The yellow metal is likely seeing some profit-taking as higher Treasury yields apply further pressure.
Currently, the U.S. Dollar Index is up about +0.2% to $109.83.
WD-40 slips to six-month lows on unchanged FY25 guidance despite upbeat Q1 numbers (WDFC)
WD-40 (WDFC -6%) slips today despite topping earnings and sales estimates in Q1 (Nov). Today's lackluster response stems primarily from the multi-use product maker, known most for its WD-40 brand, reiterating its FY25 (Aug) outlook even after delivering meaningful top and bottom-line upside in the quarter. It is important to note that last quarter WDFC issued downbeat FY25 guidance, projecting earnings markedly below consensus at $5.20-5.45 on pro forma revenue growth of +6-11%. By not hiking its previously lowered guidance, WDFC is signaling some headwinds ahead.
- WDFC's reiterated FY25 guidance incorporates the possibility that trends will begin to slow moving forward. For instance, in Q1, EPS expanded by around 9% to $1.39. To reach the midpoint of its FY25 outlook, WDFC must register average earnings of around $1.31 for the next three quarters. Likewise, WDFC's FY25 sales outlook includes the potential for growth to weaken following a 9.2% increase in Q1 to $153.3 mln.
- The Asia-Pacific region, including Australia, China, and others, is potentially weighing on future growth. During Q1, sales in this region contracted by 4% yr/yr to $26.6 mln, driven by lower sales of the company's core product in Asia distributor markets.
- On the bright side, prospects in WDFC's primary Americas region remain healthy. During Q1, sales edged 8% higher in the area to $69.4 mln, supported by the company's namesake WD-40 brand and higher sales volumes linked to promotional activities. Management added that nothing stood out surrounding large volume promotions that boosted sales. Rather, the home center channel in the U.S. stayed strong during the quarter, and retail sales have picked up as retail foot traffic and DIY activity appear to be improving.
- Meanwhile, in the EIMEA region, which includes India, sales surged by 18% yr/yr to $57.5 mln, bolstered by a 19% jump in maintenance products and a 21% increase in WDFC's core product. While the Asian Pacific sales were disappointing, WDFC's success in EIMEA underscores progress within the geographic expansion component of its "Must-Win Battles" framework.
- Other pieces of WDFC's "Must-Win Battles" include driving higher sales of its premium formats of WD-40, which act as a major contributor to its top and bottom lines, and driving WD-40 Specialist growth, which expanded by 14% yr/yr in Q1.
- A final item to note is WDFC's homecare and cleaning product portfolio, which continues to experience declining sales growth. The company is looking to divest this business, targeting a Q2 (Feb) sale. As such, WDFC backed out this business in its FY25 revenue growth outlook.
WDFC delivered a decent performance in Q1. However, without it flowing into the company's FY25 guidance, investors are left wanting more. The unchanged guidance may also keep sellers in control over the near term until WDFC expresses more confidence in a brighter back half of the year.
Johnson & Johnson taps M&A market to provide welcomed boost for Innovative Medicines segment (JNJ)
In a bid to provide its Innovative Medicines segment with a much-welcomed boost, Johnson & Johnson (JNJ) has turned to the M&A market, making a big slash with a $14.6 bln acquisition of Intra-Cellular Therapies (ITCI). At $132/share, JNJ is paying a 39% premium to last Friday's closing price for ITCI, which closed the day with a 15% gain after the company entered into a settlement agreement with Sandoz that resolved patent litigation related to ITCI's CAPLYTA product.
With that litigation uncertainty now out of the picture, the path may have been cleared for this transaction to unfold. While the agreement permits Sandoz to begin selling a generic version of Sandoz -- ITCI's FDA-approved treatment for schizophrenia -- the Swiss pharmaceutical company may have to wait until July 1, 2040 to bring its drug to market (depending on certain conditions). That ruling was more favorable for ITCI than analysts were anticipating, explaining why shares soared higher last Friday.
- The crown jewel of JNJ's acquisition of ITCI is CAPLYTA, a once-daily oral therapy that's not only approved to treat adults with schizophrenia but is also approved to treat depressive episodes associated with bipolar I or II disorder as a monotherapy and adjunctive therapy. In Q3, sales of CAPLYTA jumped by 39% yr/yr to $175.2 mln and ITCI raised its FY25 sales forecast to $665-$685 mln from its prior guidance of $650-$680 mln.
- For a pharmaceutical giant like JNJ -- the company did nearly $22.5 bln in sales in Q3 alone -- this may seem like a drop in the bucket. However, CAPLYTA may only be scratching the surface in terms of its revenue-generating potential. On December 3, 2024, ITCI submitted a supplemental new drug application (sNDA) to the FDA for CAPLYTA as an adjunctive treatment for adults with major depressive disorder (MDD), a psychiatric disorder that affects an estimated 21 mln adults in the U.S. About one week later, the company issued positive data from the Phase 3 trial for CAPLYTA for MDD, showing that the treatment displayed a statistically significant and clinically meaningful improvement in depressive symptoms.
- ITCI has been preparing for a potential commercial launch of CAPLYTA for MDD this year. If approved, the drug could ultimately become the standard of care for most depressive disorders, resulting in peak sales in the $4-$5 bln per year range.
If all goes well, CAPLYTA could really move the needle for JNJ's Innovative Medicines segment, which generated fairly tepid revenue growth of 4.9% in Q3 to $14.6 bln. The cherry on top is that JNJ is also adding ITI-1284 to its pipeline, a compound ITCI has been testing for generalized anxiety disorder and Alzheimer's disease. Overall, we believe the addition of ITCI is a good fit for JNJ, especially since some of the risk has been taken off the table with last Friday's patent litigation resolution.
lululemon athletica boosts Q4 guidance after strong holiday season as turnaround takes hold (LULU)
Shares of lululemon athletica (LULU) were stretching higher in early action after the activewear company raised its Q4 revenue and EPS guidance following a stronger-than-expected holiday shopping season. In 2024, sluggish consumer spending trends, rising competition, and some product and merchandising missteps in the spring made for an especially challenging year, as illustrated by the stock's 25% dive lower. However, LULU's upside Q3 earnings report on December 5 indicated that a turnaround was underway, bolstered by ongoing strength in the international business, as well as some improvement in the struggling Americas business, which now has a new reporting structure within the product team.
- For Q4, LULU is now expecting revenue to grow by 11-12% to $3.56-$3.58 bln, up from its prior guidance of $3.475-$3.510 bln, and EPS of $5.81-$5.85, compared to its former outlook of $5.56-$5.64. When the company reported Q3 results in early December, there was a belief that its Q4 guidance -- which was merely in line with revenue and EPS estimates at the time -- was conservative after CEO Calvin McDonald stated during the earnings call that the holiday shopping season was off to a solid start. He added that traffic trends in both the e-Commerce and store channels were healthy over the Thanksgiving weekend.
- That positive sentiment has underpinned a 17% rally in the stock since the Q3 earnings report. If sales trends continue to improve for the Americas business, more gains could be in LULU's future. One year ago, the company botched its merchandising strategy, releasing a more limited range of colors, prints, and patterns for its spring product assortment. This gaffe amplified the macro-related headwinds that LULU was already contending with, resulting in Americas' comparable sales growth sinking to flat in 1Q25 and then to -2% in 2Q25.
- Last quarter, though, the initial signs of a turnaround surfaced as Americas' net revenue edged higher by 2% with the U.S. flat on a qtr/qtr basis, reflecting a stabilization in demand. Importantly, LULU didn't lean on markdowns and promotions to drive the improved demand, as indicated by the 40 bps increase in adjusted gross margin. On that note, LULU also bumped its Q4 gross margin guidance higher, forecasting an increase of 30 bps compared to its prior outlook for a decrease of 20-30 bps.
- Meanwhile, the international business is booming, led by China, where comps soared by 24% in constant currency in Q3. The company's direct sales approach, including hosting wellbeing events and activations, has worked wonders in China.
The main takeaway is that LULU's turnaround efforts are gaining traction after a difficult year in which the company lost some ground to competitors such as Athleta, Alo, Fabletics, and others. While macroeconomic headwinds are persisting, the company's higher-income customer base should work in its favor as it improves its product assortment.
Abercrombie & Fitch tumbles toward August lows as Q4 guidance signals slowing growth (ANF)
Abercrombie & Fitch (ANF -18%) loses much of its appeal today despite raising its Q4 (Jan) sales outlook following upbeat holiday spending trends. The clothing retailer focused on a younger demographic lifted its Q4 net sales forecast to +7-8% from +5-7%, pushing its FY25 revenue growth guidance to around +15% compared to its previous +14-15% forecast. Additionally, ANF reiterated its operating margin projections for the quarter and full year, anticipating around 16% and 15%, respectively.
- Why are shares heading lower? ANF's sales trends weakened this year compared to the previous holiday season. In 2023, ANF raised its Q4 net sales growth outlook to a high teens percentage from low double-digits, suggesting around a 5-9 pt bump due to a robust holiday shopping season. A similar development is unfolding for rival American Eagle (AEO), whose total revenue is tracking around 5% lower for Q4 compared to a low double-digit jump during the year-ago period.
- Despite offering similar product assortment, ANF and AEO are not cut from the same cloth. ANF appreciated by over +60% during 2024, while AEO languished, slipping by around 20%. The key difference was ANF's massive brand overhaul, tossing away the dimly lit teenage aesthetic and focusing on higher-quality tailored clothing for a 20-40-year-old demographic. The move resulted in soaring revenue growth, from periods of low single-digit jumps to multiple quarters of over +20% growth.
- Following this impressive upward momentum, ANF has raised the bar significantly, opening the door to quick profit-taking on underwhelming or concerning numbers, such as its softening trends during the 2024 holiday season. ANF may have pushed the bar even higher with its remarks during its Q3 (Oct) earnings call in late November, conveying optimism about its upcoming newness in various gift ideas across categories, marketing campaigns, and investments in new and existing locations to support climbing traffic trends.
- Lingering in the background remains uncertainty across the macroeconomic environment. CEO Fran Horowitz mentioned during the company's Q2 (Apr) earnings call in late August that the global economy remains dynamic, keeping uncertainty elevated. However, ANF's upbeat performance in Q3 temporarily alleviated these fears. With 2024 holiday sales trends not shaping up quite to the market's liking, investors are growing worried that perhaps the economic headwinds felt last year are beginning to creep back up.
ANF still expects to finish FY25 with a 15% improvement to its top line yr/yr. Even though this is a slowdown from the +16% spike posted in FY24, it still underscores relatively healthy demand, especially compared to AEO. Nevertheless, any cracks underneath the surface for ANF will likely spark concern. Going forward, the company's playbook is to expand its international presence while continuing to strengthen its refreshed look at home. If inflationary pressures tick back up, consumer discretionary categories like fashion apparel could face outsized challenges. With ANF putting on a show over the past several quarters, its stock could take a disproportionate hit if growth begins to throttle more aggressively.
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.
|
