Market Snapshot
| Dow | 42518.28 | +221.16 | (0.52%) | | Nasdaq | 19044.39 | -43.71 | (-0.23%) | | SP 500 | 5846.53 | +6.69 | (0.11%) | | 10-yr Note | 0/32 | 4.79 |
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| | NYSE | Adv 2052 | Dec 674 | Vol 943 mln | | Nasdaq | Adv 2524 | Dec 1817 | Vol 7.2 bln |
Industry Watch
| Strong: Utilities, Materials, Real Estate, Financials, Industrials |
| | Weak: Health Care, Communication Services, Information Technology, Consumer Staples, Energy |
Moving the Market
-- Buy-the-dip interest aided by yesterday's turnaround and cooler-than-expected numbers in the December Producer Price Index
-- Some mega caps and chipmakers turned lower, limiting index performance
-- Outperformance of small caps
-- Calm action in Treasuries
| Closing Summary
14-Jan-25 16:30 ET
Dow +221.16 at 42518.28, Nasdaq -43.71 at 19044.39, S&P +6.69 at 5846.53
[BRIEFING.COM] The stock market had a mixed session at the index level, but the vibe under the surface was positive. Market participants were reacting to the cooler-than-expected inflation data released at 8:30 ET, which garnered a muted response from Treasuries and helped the upside bias in equities. There was also some momentum in play after the stock market staged a turnaround yesterday thanks to buy-the-dip interest.
The December Producer Price Index (PPI) readings exceeded expectations, reflecting a welcome easing in inflationary pressures on a month-to-month basis. The year-over-year numbers were less market-friendly with PPI up 3.3% versus 3.0% in November, and core-PPI, which excludes food and energy, up 3.5%, unchanged from November. Treasuries still responded favorably, leading the 10-yr yield settled two basis points lower at 4.79% and the 2-yr yield settled four basis points lower at 4.36%.
The choppy moves in the major indices were related to volatility in the mega cap space. NVIDIA (NVDA 131.76, -1.47, -1.1%), Tesla (TSLA 396.36, -6.95, -1.7%), and Alphabet (GOOG 191.05, -1.24, -0.6%) traded lower with no specific news driving the movement while other names like Microsoft (MSFT 415.67, -1.52, -0.4%), Eli Lilly (LLY 744.91, -52.57, -6.6%), and Meta Platforms (META 594.25, -14.08, -2.3%) reacted negatively to headlines.
MSFT reportedly paused hiring in its US consulting unit as part of a cost-cutting plan, according to CNBC; LLY lowered Q4 revenue guidance; and META reacted to reports that TikTok US is not going to be sold after initial reporting suggested that may be the case.
Small cap stocks soared while mega cap languished, leading the Russell 2000 to jump 1.1% from yesterday's close. This move was helped out by strength in its regional bank components, which outperformed in front of earnings reports from bank stocks this week.
Strength in the bank space also led the SPDR S&P Bank ETF (KBE) to close 3.3% higher and the SPDR S&P Regional Banking ETF (KRE) to close 3.4%. The S&P 500 financial sector was among the top performers today, gaining 1.3%.
- S&P Midcap 400: +1.3% YTD
- Dow Jones Industrial Average: -0.1% YTD
- Russell 2000: -0.5% YTD
- S&P 500: -0.7% YTD
- Nasdaq Composite: -1.4% YTD
Reviewing today's economic data:
- December NFIB Small Business Optimism 105.1; Prior 101.7
- December PPI 0.2% (Briefing.com consensus 0.3%); Prior 0.4%, December Core PPI 0.0% (Briefing.com consensus 0.2%); Prior 0.2%
- The key takeaway from the report is that the better-than-expected monthly readings have been clouded by the less inspiring year-over-year readings, as well as the understanding that inflation at the wholesale level moved in the wrong direction in 2024 (versus 2023) and remains elevated relative to the Fed's 2% inflation target.
Looking ahead, market participants receive the following economic data tomorrow:
- 7:00 ET: Weekly MBA Mortgage Index (prior -3.7%)
- 8:30 ET: December CPI (Briefing.com consensus 0.3%; prior 0.3%), Core CPI (Briefing.com consensus 0.2%; prior 0.3%), and January Empire State Manufacturing (Briefing.com consensus -2.0; prior 0.2)
- 10:30 ET: Weekly crude oil inventories (prior -959,000)
Treasuries settle with gains
14-Jan-25 15:35 ET
Dow +83.23 at 42380.35, Nasdaq -118.68 at 18969.42, S&P -14.32 at 5825.52
[BRIEFING.COM] The major indices are trying to recover after the recent downturn. The S&P 500 is down about 15 points, or 0.2%.
The 10-yr yield settled two basis points lower at 4.79% and the 2-yr yield settled four basis points lower at 4.36%.
Looking ahead, market participants receive the following economic data tomorrow:
- 7:00 ET: Weekly MBA Mortgage Index (prior -3.7%)
- 8:30 ET: December CPI (Briefing.com consensus 0.3%; prior 0.3%), Core CPI (Briefing.com consensus 0.2%; prior 0.3%), and January Empire State Manufacturing (Briefing.com consensus -2.0; prior 0.2)
- 10:30 ET: Weekly crude oil inventories (prior -959,000)
Mega caps take market lower, again
14-Jan-25 15:00 ET
Dow +59.63 at 42356.75, Nasdaq -99.32 at 18988.78, S&P -12.09 at 5827.75
[BRIEFING.COM] The major indices turned slightly lower over the last half hour, but the Dow Jones Industrial Average (+0.4%) remains near its high of the day.
Downside moves coincided with some mega caps moving sharply lower. Meta Platforms (META 592.52, -15.75, -2.6%), Amazon.com (AMZN 217.42, -1.02, -0.5%), Microsoft (MSFT 414.68, -2.51, -0.6%), and NVIDIA (NVDA 130.60, -2.63, -2.0%) participated in the deterioration, weighing down their respective S&P 500 sectors. The move in MSFT followed news that the company paused hiring in its US consulting unit as part of a cost-cutting plan, according to CNBC.
The communication services (-1.2%), information technology (-0.5%), and consumer discretionary (-0.1%) sectors are among the worst performers today.
December Treasury deficit shrinks YoY, but Fiscal 2025 deficit up 39.4%
14-Jan-25 14:25 ET
Dow +220.00 at 42517.12, Nasdaq +40.84 at 19128.94, S&P +19.24 at 5859.08
[BRIEFING.COM] The S&P 500 (+0.33%) has held its higher lines, little changed in reaction to the December Treasury Budget which hit at the bottom of the hour.
The Treasury Budget for December showed a deficit of $86.7 billion compared to a deficit of $129.4 billion in the same period a year ago. The December deficit resulted from outlays ($541 billion) exceeding receipts ($454 billion). The Treasury Budget data are not seasonally adjusted so the December deficit cannot be compared to the November deficit of $366.7 billion.
The key takeaway from the report is that the deficit in early fiscal 2025 is 39.4% greater than the deficit for the same period in fiscal 2024.
Gold edges higher as cooler inflation data boosts Fed rate-cut expectations
14-Jan-25 13:55 ET
Dow +221.82 at 42518.94, Nasdaq +42.93 at 19131.03, S&P +19.63 at 5859.47
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.22%) has climbed out of losses from the previous half hour; the market expects the December Treasury Budget at the top of the hour, the release delayed by a day in part due to last week's holiday related to President Carter's funeral.
Gold futures settled $3.70 higher (+0.1%) to $2,682.30/oz as cooler U.S. inflation data fueled Fed rate-cut hopes.
Currently, the U.S. Dollar Index is down about -0.3% to $109.27.
Eli Lilly struggles to meet sky-high expectations as Q4 Mounjaro and Zepbound sales fall short (LLY)
Sales of Eli Lilly's (LLY) blockbuster diabetes and weight loss drugs, Mounjaro and Zepbound, are very strong, but they're not quite as robust as the company and analysts had anticipated in Q4. Therefore, the company issued downside Q4 revenue guidance of $13.5 bln, igniting a sharp selloff in the stock that has now taken shares lower by about 24% from the record highs set last August.
The pharmaceutical giant also guided for FY25 revenue of $58-$61 bln, equating to estimated yr/yr growth of approximately 32% and beating expectations at the midpoint of the range. However, the lofty expectations and rich valuation -- LLY is currently trading with a 1-year Forward P/E of 35x -- is leaving little room for error and the company's second straight quarterly revenue miss is enough of a blemish to instigate a pullback.
- Rewinding to last quarter, the story was much the same as today. While demand for Mounjaro and Zepbound was very strong, as reflected by Mounjaro sales surging by 121% yr/yr to $3.11 bln and Zepbound generating sales of nearly $1.3 bln, inventory decreases in the wholesale channel prevented growth from being even stronger. LLY estimated that these decreases negatively impacted Q3 sales of Mounjaro and Zepbound by a mid-single-digit rate.
- Similarly, in this morning's press release, LLY cited lower-than-expected channel inventory as a factor in its softer-than-expected Q4 results. Furthermore, the anticipated bump in December sales that typically results from customers bolstering prescriptions before deductibles reset in January did not play out as expected.
- Looking beyond Mounjaro and Zepbound, most of LLY's portfolio is also performing quite well. In fact, its non-incretin products generated strong growth of 20% in Q4, marking an acceleration from last quarter's growth of 17%. Verzenio, a treatment for metastatic breast cancer, has been a standout with sales up by 37% in Q3, while autoimmune disease drug Taltz has also seen solid growth. The clear laggard has been Trulicity, a diabetes/weight loss drug that has been cannibalized by the surge in sales for Mounjaro and Zepbound. In Q3, Trulicity sales tumbled by 22% to $1.30 bln.
The main takeaway is that business is still quite strong for LLY and that FY25 is setting up to be another highly successful year, led by high double-digit growth for Mounjaro and Zepbound. Expectations are sky-high for the company, so any disappointment is going to be amplified, but many companies -- especially mature pharmaceutical companies -- would gladly accept 30%+ top-line growth.
Amazon reportedly planning to rearchitect Alexa with Gen AI; hallucinations prove tall hurdle (AMZN)
Amazon (AMZN) initially saw decent gains today before the move faded, keeping the stock on a modest downward trajectory since reaching record highs last month. The jump to kickstart today's trading session was supported by an FT report surrounding the e-commerce and cloud giant's plans to re-introduce its Alexa assistant as an AI product, following in the footsteps of its big tech counterparts, including Google (GOOG) and Apple (AAPL).
AMZN has hinted at its desire to rearchitect Alexa's "brain" with a new set of foundation models as it increasingly adds more AI to all of its devices. For instance, its new Kindle Scribe, which was announced late last year, possesses a built-in AI-powered notebook, enabling rapid summarizing of notes. This device, combined with AMZN's Kindle Paperwhite, which now touts a color screen, as well as the new pocket-sized Kindle, saw outsized sales within the first few weeks of launch, exceeding management's expectations.
While it is unclear how much AI has influenced customers' buying decisions, it could be a deciding factor when weighing competing products. AMZN is slightly behind surrounding retail consumer-focused AI. While AWS is leveraging advanced AI capabilities, AMZN's consumer electronics continue to come with an increasingly outdated Alexa voice assistant when stacked against its peers. For instance, Google's Gemini assistant has featured AI for over a year, while Apple's Siri received a major overhaul a few months ago and is now integrated with ChatGPT (MSFT).
- AMZN falling behind is a consequence of struggling to eliminate AI hallucinations, where the model makes up an answer instead of disclosing that it cannot find information on the topic. Hallucinations remain a nagging problem across all large language models (LLMs). Numerous companies, from those in AI to other unrelated verticals, have discussed the risk of hallucination in their AI-powered chatbots. For instance, Meta Platforms (META) noted last year that rushing AI to market has resulted in considerable hallucination rates.
- AMZN wants Alexa to be embedded across an individual's home, turning on lights, playing music, closing blinds, etc. With Alexa trying to be more than a personal phone assistant, hallucinations can shut the door on adoption, making it critical to avoid these issues before launch, which has created some delays.
- Still, revamping Amazon Alexa is more of a matter of when than if. During AMZN's Q3 earnings call in October, CFO Brian Olsavsky commented that a Gen-AI-powered Alexa is absolutely going to happen. With around 500 mln Alexa-enabled devices across the globe, AMZN has the potential to quickly become an AI leader within the consumer tech world. The company will not want to pass up this opportunity.
AMZN has high ambitions surrounding Alexa, given that the assistant is used across homes, offices, vehicles, and within the hospitality industry. Given the sophistication of LLMs, Alexa can act as a powerful personal assistant. However, hallucinations can quickly damage an AI model's reputation, making it crucial that AMZN gets this right on the first go-around.
KB Home building solid gains after upside Q4 results, but high mortgage rates still an issue (KBH)
The homebuilding industry has shown some cracks in its foundation recently as stubbornly high mortgage rates have forced new construction companies to remain in a promotional mode in order to ease affordability headwinds, but KB Home's (KBH) better-than-expected Q4 results are providing the space with a much-needed boost. Buoyed by a healthy labor market and favorable demographics, demand for new homes was strong in Q4, as illustrated by KBH's 40% yr/yr increase in net orders in Q4.
With shares of KBH diving by 23% since the beginning of December, the stock was primed for a rebound and KBH's quarterly results and outlook helped ease concerns that business conditions are continuing to deteriorate for the company and the overall industry. However, KBH and others aren't out of the woods just yet as high mortgage rates are still presenting an obstacle.
- On that note, KBH stated during the earnings call that despite two interest rate cuts from the Fed totaling 75 basis points, mortgage rates actually increased from September to October, and then again in November. As a result, some potential home buyers held back on purchase decisions -- especially during the last two months of Q4 -- causing the company to fall short of its internal sales goal.
- This hesitancy has continued into Q4, putting some pressure on net orders. For the first six weeks of 1Q25, net orders are down by 12% yr/yr to 1,026, but KBH does expect net orders to pick up as it enters the stronger spring selling season. Furthermore, KBH has been able to improve its build times by an average of 28%, leading to a 17% jump in deliveries in Q4 to 3,978.
- Additionally, KBH held firm on its base prices -- average selling price rose by 3% to $501,000 -- while direct costs, such as lumber and concrete, also decreased in the closing months of FY24. These factors helped to offset the impact from incentives, including mortgage rate buydowns or locks, which were provided to about 60% of KBH's customers in Q4. Taken altogether, adjusted housing gross profit margin ticked higher by 20 bps sequentially to 20.9%.
- Encouragingly, the company anticipates housing gross profit margin to remain stable in FY25 at 20.0-21.0%, even as tariffs under the new Trump Administration potentially drive up the costs of U.S. produced materials. Through volume-based pricing, the company believes that it can offset the impact of rising costs from tariffs.
Overall, KBH's Q4 results and FY25 guidance were solid and reinforced the notion that the homebuilding industry is in relatively healthy shape, but persistently higher mortgage rates are still a barrier to stronger growth and higher margins.
Signet Jewelers (SIG) shares tarnished by weak holiday sales, lowered guidance (SIG)
Signet Jewelers' (SIG -21%) holiday sales trends fell short, leading the jewelry retailer to cut its Q4 (Jan) revenue forecast by roughly $93 mln when taking the midpoint. SIG now anticipates final quarter revenue of $2.320-2.335 bln, translating to an approximately 7% drop yr/yr and marking SIG's ninth consecutive quarter of yr/yr sales compression. Meanwhile, total same-store sales decreased by around -2% during the season, driving SIG's slashed Q4 comp outlook to negative 2.0-2.5% versus its previous flat to +3% target.
- What went wrong? Consumers gravitated toward lower price points more than SIG anticipated during the holidays, flocking to many of the company's lower-priced rivals. For instance, Costco (COST) mentioned last week that non-food items enjoyed high teen percentage growth in December, with jewelry being among the better-performing categories.
- Last month, SIG noted that it had room to engage in some promotional activity to defend against competitive pressures, adding that its initial Q4 guidance, which met analyst expectations, provided enough flexibility within its view of gross margins. Unfortunately, SIG stated today that merchandise assortment gaps were apparent across critical gifting price points during the holidays, hindering its ability to lure enough customers to boost sales.
- There were a few silver linings from the holiday season. For example, SIG's Engagement and Service division saw sales trends meet expectations. Furthermore, average unit retail ticked higher across Bridal and Fashion businesses, edging 5% higher overall. However, CEO J.K. Symancyk, who took over in November following Virginia Drosos's retirement, conceded that SIG could do better, adding that meaningful potential has yet to be uncovered.
With shares tracking near two-year lows, the question now is where SIG goes from here to reengage investors. The company is operating at a time when lower-priced merchants are scooping up customers, and close peers, such as Pandora (PANDY), continuously conduct the right moves to deliver growth despite a challenging economic environment. For instance, Pandora posted 8% like-for-like growth during the first nine months of 2024 versus SIG's -4.6% comp growth over that same period despite lapping a much more favorable -12.6% comp in the year-ago period.
Falling short of expectations during December, which tends to see twice the number of engagements compared to every other month, is a troubling setback, especially since it can often provide much-needed momentum heading into the new year. Without this wind at its back, SIG may need to lean more on promotions going forward to reenergize its top line. However, this can squeeze profitability, bottlenecking earnings upside in future quarters unless SIG turns to aggressive cost-cutting. Meanwhile, even though inflationary pressures have not reaccelerated, their cumulative effects are weighing on the consumer, which could ultimately cause SIG to struggle to dazzle investors over the near term.
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.
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