| | | Market Snapshot
| Dow | 43153.13 | -68.42 | (-0.16%) | | Nasdaq | 19338.29 | -172.94 | (-0.89%) | | SP 500 | 5940.96 | -12.57 | (-0.21%) | | 10-yr Note | +25/32 | 4.61 |
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| | NYSE | Adv 1701 | Dec 1008 | Vol 913 mln | | Nasdaq | Adv 2221 | Dec 2102 | Vol 7.1 bln |
Industry Watch
| Strong: Utilities, Real Estate, Energy, Industrials, Health Care, Materials, Consumer Staples |
| | Weak: Consumer Discretionary, Communication Services, Information Technology |
Moving the Market
-- Technical resistance after the S&P 500 could not maintain a posture above its 50-day moving average (5,962)
-- Digesting another batch of better-than-expected earnings results from the likes of Bank of America (BAC), Morgan Stanley (MS), U.S. Bancorp (USB), and PNC Financial Services (PNC)
-- Move lower in Treasury yields following remarks from Fed Governor Waller
-- Reacting to slate of economic news
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Closing Summary
16-Jan-25 16:25 ET
Dow -68.42 at 43153.13, Nasdaq -172.94 at 19338.29, S&P -12.57 at 5940.96
[BRIEFING.COM] Today's trade was mixed following yesterday's CPI-induced surge. The Nasdaq Composite underperformed its peers, dropping 0.9%, while the Dow Jones Industrial Average (-0.2%) and S&P 500 (-0.2%) traded around their prior closing levels. The Russell 2000 eked out a 0.2% gain.
There was a big batch of economic data, earnings news, and headlines to digest today and most of them could've acted as support for the stock market. Retail sales and weekly jobless claims reflected ongoing strength in the economy and labor market, Treasury Secretary nominee Scott Bessent reiterated at his confirmation hearing that the U.S. must get its fiscal house in order while also pursuing pro-growth policies, and Fed Governor Waller (FOMC voter) said he believes that there could possibly be 3-4 rate cuts this year, depending on the data.
Treasury yields declined after Fed Governor Waller's remarks. The 10-yr yield settled five basis points lower at 4.61% and the 2-yr yield settled two basis points lower at 4.24%.
Equities still struggled, though, due to technical resistance after the S&P 500 could not maintain a posture above its 50-day moving average (5,962) and due to losses in influential names. Apple (AAPL 228.26, -9.61, -4.0%), NVIDIA (NVDA 133.57, -2.67, -2.0%), Tesla (TSLA 413.82, -14.40, -3.4%), Amazon.com (AMZN 220.66, -2.69, -1.2%), Meta Platforms (META 611.30, -5.82, -0.9%), and Microsoft (MSFT 424.58, -1.73, -0.4%) were among the standouts in that respect.
Some companies that reported earnings traded lower despite better-than-expected results. Bank of America (BAC 46.64, -0.46, -1.0%) and US Bancorp (USB 48.03, -2.87, -5.6%) were among them while Morgan Stanley (MS 135.81, +5.26, +4.0%) hit a fresh 52-week high in response to earnings.
Dow component UnitedHealth (UNH 510.59, -32.83, -6.0%) was another name that reported results, stumbling after reporting Q4 and year-end results that featured a higher medical care ratio.
Losses in some of the aforementioned names weighed down the S&P 500 information technology (-1.3%), communication services (-1.0%), and consumer discretionary (-0.9%) sectors while the remaining eight sectors registered gains ranging from 0.4% (health care) to 2.6% (utilities).
- S&P Midcap 400: +3.4% YTD
- Russell 2000: +1.6% YTD
- Dow Jones Industrial Average: +1.4% YTD
- S&P 500: +1.0% YTD
- Nasdaq Composite: +0.1% YTD
Reviewing today's economic data:
- December Retail Sales 0.4% (Briefing.com consensus 0.5%); Prior was revised to 0.8% from 0.7%, December Retail Sales ex-auto 0.4% (Briefing.com consensus 0.5%); Prior 0.2%
- The key takeaway from the report is that retail sales, which are not adjusted for price changes, were more subdued than expected in December, suggesting consumers spent in a more considerate manner. Importantly, though, they remained inclined to spend.
- Weekly Initial Claims 217K (Briefing.com consensus 212K); Prior was revised to 203K from 201K, Weekly Continuing Claims 1.859 mln; Prior was revised to 1.877 mln from 1.867 mln
- The key takeaway from the report is that there was nothing disruptive about it in terms of the market's understanding that the labor market, overall, continues to be in pretty good shape.
- January Philadelphia Fed Index 44.3 (Briefing.com consensus -6.0); Prior was revised to -10.9 from -16.4
- December Export Prices 0.3%; Prior 0.0%
- December Export Prices ex-ag. 0.3%; Prior was revised to 0.0% from 0.1%
- December Import Prices 0.1%; Prior 0.1%
- December Import Prices ex-oil 0.1%; Prior was revised to 0.1% from 0.0%
- November Business Inventories 0.1% (Briefing.com consensus 0.1%); Prior was revised to 0.0% from 0.1%
- January NAHB Housing Market Index 47 (Briefing.com consensus 45); Prior 46
Looking ahead to Friday, market participants receive the following economic data:
- 8:30 ET: December Housing Starts (Briefing.com consensus 1.318 mln; prior 1.289 mln), Building Permits (Briefing.com consensus 1.454 mln; prior 1.505 mln)
- 9:15 ET: December Industrial Production (Briefing.com consensus 0.3%; prior -0.1%) and Capacity Utilization (Briefing.com consensus 77.0%; prior 76.8%)
- 16:00 ET: November Long-Term TIC Flows (prior $152.3 bln)
Companies reporting earnings trade mixed
16-Jan-25 15:30 ET
Dow -57.89 at 43163.66, Nasdaq -99.89 at 19411.34, S&P -4.30 at 5949.23
[BRIEFING.COM] There hasn't been much up or down action at the index level in recent trading.
Companies that report earnings ahead of Friday's open trade in mixed fashion. SLB (SLB 41.05, +0.40, +1.0%), Truist (TFC 44.78, -0.61, -1.3%), and State Street (STT 99.88, +0.11, +0.1%) are standouts in that respect.
Looking ahead to Friday, market participants receive the following economic data:
- 8:30 ET: December Housing Starts (Briefing.com consensus 1.318 mln; prior 1.289 mln), Building Permits (Briefing.com consensus 1.454 mln; prior 1.505 mln)
- 9:15 ET: December Industrial Production (Briefing.com consensus 0.3%; prior -0.1%) and Capacity Utilization (Briefing.com consensus 77.0%; prior 76.8%)
- 16:00 ET: November Long-Term TIC Flows (prior $152.3 bln)
Treasuries hold steady near intraday low yields
16-Jan-25 15:00 ET
Dow -33.85 at 43187.70, Nasdaq -62.45 at 19448.78, S&P +0.65 at 5954.18
[BRIEFING.COM] Some of the major indices trade below prior closing levels.
Chicago Fed President Goolsbee (FOMC voter), considered by many to be among the dovish FOMC members, said he thinks the Fed should be more patient with rate cuts, according to The Wall Street Journal. Treasury yields didn't react much to the remarks, unlike this morning's commentary from Fed Governor Waller, which fueled buying in Treasuries.
The 10-yr yield is at 4.61% and the 2-yr yield is at 4.24%.
S&P 500 dips as Applied Materials rises, Charles River leads decliners
16-Jan-25 14:30 ET
Dow -50.73 at 43170.82, Nasdaq -90.85 at 19420.38, S&P -3.90 at 5949.63
[BRIEFING.COM] The S&P 500 (-0.07%) is in "first" place this afternoon, showing only modest losses of 4 points.
Briefly, S&P 500 constituents Charles River (CRL 165.46, -8.45, -4.86%), Texas Instruments (TXN 188.21, -9.30, -4.71%), and Enphase Energy (ENPH 63.52, -2.31, -3.51%) dot the bottom of the standings. CRL is under pressure today as CITES recommended suspension of Cambodian NHP exports, threatening EPS and high-margin revenue, TXN caught some cautious commentary from Deutsche Bank earlier, and ENPH was downgraded to Hold at Truist ahead of the open citing heightened competition and policy uncertainty.
Meanwhile, Applied Materials (AMAT 189.35, +10.97, +6.15%) is today's top performer, holding atop the PHLX Semiconductor Index (SOX 5220.35, +66.68, +1.29%).
Nasdaq dips as Gold hits 1-month high amid Fed rate cut speculation
16-Jan-25 14:00 ET
Dow -119.43 at 43102.12, Nasdaq -136.70 at 19374.53, S&P -14.26 at 5939.27
[BRIEFING.COM] With about two hours to go on the penultimate session of the week the tech-heavy Nasdaq Composite (-0.70%) holds the steepest daily losses, probing session lows in the last half hour.
Gold futures settled $33.10 higher (+1.2%) to $2,750.90/oz, hitting a 1-month high as softer U.S. inflation data fueled Fed rate cut bets thus making the yellow metal a more attractive investment.
Currently, the U.S. Dollar Index is down about -0.1% to $109.01.
Target misses the mark with Q4 guidance as reaffirm of EPS outlook points to margin erosion (TGT)
At first glance, Target's (TGT) upwardly revised Q4 comparable sales guidance, which now calls for growth of approximately 1.5% compared to its prior forecast of flat comps, looks quite bullish for the big box retailer. Indeed, there are some positive takeaways from the improved comp guidance, especially after TGT reported weak Q3 results in November that also included downside Q4 EPS guidance of $1.85-$2.45. However, it's the company's EPS outlook that's once again causing disappointment.
- In addition to raising its comp outlook, TGT merely reaffirmed its Q4 EPS guidance, which is reigniting concerns around the company's margins. Simply put, if TGT saw an upswing in sales, but not an accompanying improvement in earnings, it suggests that it relied on markdowns and promotions to drive demand. Rewinding to Q3, operating margin contracted by 60 bps yr/yr partly due to price cuts and TGT telegraphed that it would remain in a promotional mode as it looked to reconnect with budget-conscious customers.
- That's not the only concern. The company's Q4 (ending January) +1.5% comp guidance also indicates that sales have decelerated in January since it disclosed that comparable sales increased by 2% in November and December. Therefore, the bump experienced during the holiday shopping season didn't seem to translate into a more sustainable uptrend in sales.
- With that said, there are some notable bright spots. For instance, TGT saw a meaningful sales acceleration from Q3 in discretionary categories such as apparel and toys. This is especially crucial for TGT given that around 70-75% of its sales come from discretionary categories, which has put it at a distinct disadvantage against its rival Walmart (WMT). The shift in spending patterns towards necessities like food, beverage, and everyday items has worked in WMT's favor, as illustrated by its stronger Q3 U.S. comp growth of 5.3% compared to just 0.3% for TGT.
- Another positive for TGT is that it continues to see traffic growth in both its stores and digital channels. In fact, the company noted that December marked its eighth consecutive month of yr/yr traffic growth. Looking at the November and December period, guest traffic was up 3%, while digital sales grew by nearly yr/yr for the same period. TGT has established some solid momentum in its e-Commerce channel as digital comps increased by 11% last quarter.
The main takeaway is that TGT's updated guidance for Q4 reveals a mixed picture for the struggling retailer. On one hand, the improvement in sales for discretionary categories is a meaningful development, but on the other hand, relying more heavily on promotions and markdowns to drive those sales doesn't bode well for TGT's margins and profitability.
Taiwan Semiconductor Manufacturing rises on upbeat Q4 results, underpinned by robust AI demand (TSM)
Chip manufacturing behemoth Taiwan Semi (TSM +4%) is flirting with all-time highs reached earlier this month after delivering energetic Q4 results, including healthy top and bottom-line beats and bullish Q1 revenue guidance. TSM, which supplies the chips used by most tech giants, from Apple (AAPL) to NVIDIA (NVDA), has consistently benefited from an unwavering demand for AI. In 2024, revenue from AI accelerators (including AI GPUs, AI ASICs, and HBM controllers for training) more than tripled yr/yr. For 2025, TSM anticipates much of the same, forecasting revenue from AI accelerators to double off an excellent 2024 base year, reflecting a continuous appetite for the technology this year.
- Headline earnings and sales were robust in Q4, expanding by 55% yr/yr to $2.24 and 37% to $26.88 bln, respectively. Aside from IoT and DCE (digital consumer electronics), which fell by 15% and 6% yr/yr, respectively, growth was broad-based in Q4. In HPC, TSM's largest end market, revenue surged by 19%, accounting for 53% of total revenue. Smartphone sales rose by 17%, comprising over a third of revs, while automotive sales inched 6% higher to account for 4%.
- AI demand was the underlying growth factor in Q4, consistent with the past several quarters. The company does not anticipate this letting up anytime soon, forecasting revenue growth from AI to approach a mid-40% CAGR for the next five years, starting off a high base in 2024. TSM added that AI will likely be the strongest driver of its HPC growth and the most significant contributor regarding overall incremental revenue growth over the next several years.
- With the AI winds at its back, TSM projected overall revenue growth to approach a 20% CAGR over the next five years, building off a 34% jump in 2024. In the interim, TSM guided to a $38-42 bln capital budget in 2025, a 34% lift yr/yr, reflecting anticipation of expanding demand from the many industry trends, such as 5G, AI, and HPC. For Q1, TSM expects revs of $25.0-25.8 bln and gross margins of 57-59%, a 100 bp contraction at the midpoint due to ramping its overseas fabs, inflationary costs, and FX headwinds.
While TSM's Q4 results were uplifting, they are not fueling much energy across the semiconductor landscape today, as many components experience mixed reactions. Today's unevenness is a noticeable contrast to the broad-based strength witnessed after TSM's Q3 performance in mid-October. Even though AI continues to underpin impressive growth, the rest of the picture is hazy. For instance, TSM predicts mild growth across the PC and smartphone industry in 2025, suggesting a stubbornly shaky economic backdrop that continues to strain the end consumer.
Still, TSM is confident that the headwinds in 2025 will be short-lived, citing a shortened replacement cycle and increased silicon content as PCs and smartphones contain more AI functionality. As such, TSM is poised for steady upward momentum this year, barring economic deterioration, growing geopolitical tensions, or cracks in AI.
Bank of America adds to string of solid banking earnings reports by posting upside Q4 results (BAC)
Following in the footsteps of JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC), each of which issued better-than-expected Q4 earnings yesterday, Bank of America (BAC) delivered its own upside Q4 results earlier this morning, adding to the string of solid results from the banking industry. Similar to these three main competitors, BAC capitalized on the stronger conditions in the M&A and IPO markets, as well as the favorable trading backdrop for both equities and fixed income products. Unlike JPM and WFC, though, BAC generated positive net interest income (NII) growth in Q4 at +3% to $14.4 bln, beating expectations, despite lower rates and a consumer shift towards higher-yielding assets.
This outperformance was driven by relatively stronger average loan and deposit growth of 3% for both metrics, compared to loan growth of 2% and a 4% drop in deposits for JPM. Additionally, each of BAC's business segments generated top-line growth in Q4, led by the Global Markets unit, which saw revenue climb higher by 18% yr/yr to $4.8 bln.
- Bolstered by ongoing strength in credit products, FICC trading revenue jumped by 19% to $2.5 bln, while equity trading revenue increased by 7% to $1.6 bln as record highs in the stock market drove higher client activity.
- Meanwhile, the Global Banking segment posted more modest growth of 3%, even as investment banking fees surged by 44% to 1.7 bln and as BAC picked up 116 bps in market share. Impeding the segment's growth was an 8% decrease in business lending revenue and flat growth for global transaction services.
- As anticipated, Global Wealth & Management was a standout performer in Q4, thanks to the stock market setting record highs during the quarter. High market levels and healthy client flows of capital helped push revenue higher by 15% to $6.0 bln. Assets under Management (AUM) flows surged by 168% yr/yr to $22.5 bln, resulting in total AUM balances of $1.5 trillion.
- In Consumer Banking, elevated interest rates provided a lift as average loans and leases edge up by 1% to $316 bln. Amid the elevated rate environment, BAC's customers still spent money at a healthy clip in Q4 with combined credit/debit spending up by 5% to $241 bln. However, net charge-offs did increase by nearly 23% yr/yr to $1.2 bln, reflecting the negative impact of higher interest rates.
The bottom line is that BAC executed well in a choppy environment in Q4 and that the company entered 2025 with momentum on its side. Accordingly, BAC issued solid NII guidance, forecasting NII to grow sequentially in FY25 to $15.5-$15.7 bln in Q4 from $14.5-$14.6 bln in Q1.
UnitedHealth heads lower on a rare top-line miss and rising medical costs in Q4 (UNH)
UnitedHealth (UNH -4%) looks frail today after its Q4 revenue growth fell mildly short of consensus triggered by relative weakness in its core UnitedHealthcare insurance division. The health insurance giant did exceed bottom-line estimates, but by a slimmer margin than in the past three quarters as medical costs continue to squeeze profitability. For the year, UNH's medical care ratio (MCR), which measures the percentage of premiums used to cover medical expenses, ticked 230 bps higher yr/yr to 85.5%, modestly above street estimates and 150 bps above UNH's initial outlook. On a lighter note, UNH reiterated its FY25 guidance. However, the company outlined its annual outlook just last month, so this did not come as much of a surprise.
- For the quarter, UNH recorded adjusted EPS of $6.81, a 17% improvement yr/yr. Consolidated operating margins were nearly flat compared to last year, inching just 10 bps higher to 5.9%, reflecting the consistently increasing MCR throughout the year. The underlying causes remained the same. UNH continues to notice an aggressive upshift in hospital coding intensity, a timing mismatch between the status of remaining people served by Medicaid and the lagging state rate updates, and the adverse effects of CMS's Medicare funding reductions.
- Revenue was underwhelming, expanding by 6.8% yr/yr to $100.81 bln, missing analyst forecasts for the first time since 2Q20 (UNH's pandemic quarter). The rare miss was fueled by a meager 4.7% bump in UnitedHealthcare revenue yr/yr to $74.1 bln. UNH's consistent star, Optum, its health services division, continued to shine in Q4, expanding revs by 9.4% yr/yr, supported by Optum Rx and Optum Health. Operating margins in this segment also ticked 30 bps higher yr/yr, helping offset UnitedHealthcare's 30 bp margin compression.
- Moving forward, UNH continues to expect FY25 adjusted EPS of $29.50-30.00 and revs of $450-455 bln. However, UNH's missing top-line estimates in Q4 is a minor concern heading into FY25 as it could signal the start of a worrying trend, potentially leading to a future downward revision.
- However, UNH is focused more on the cost side of its business as the health insurance industry grapples with stubbornly rising costs. The company reiterated its MCR ratio target of 86.0-87.0% for FY25, representing a 1 pt jump from FY24, a decent improvement over the 2 pt increase in FY24. Management touched on the factors influencing the slowing uptick, citing the gap in Medicaid between people's health status and state rates narrowing, a growing tilt toward self-funded offerings supporting pricing, and AI-driven initiatives underpinning operating efficiencies.
Overall, UNH delivered an adequate quarter. However, there were few noticeable bright spots for investors to hang their hats on. As such, sellers remain in control of the stock, which trades around 15% below levels directly before the murder of UnitedHealthcare CEO Brian Thompson. Rising costs remain a troubling trend for the UNH and the health insurance industry, dampening the tone ahead of many of UNH's peers' upcoming reports, such as Elevance Health (ELV) on January 23, Centene (CNC) on February 4, Molina Healthcare (MOH) on February 5, and Humana (HUM) on February 11.
Intuitive Surgical surging to record highs after guiding Q4 revenue above expectations (ISRG)
Following a banner year in 2024 in which shares rocketed higher by 55%, the bullish trend is continuing in 2025 for Intuitive Surgical (ISRG) as the stock breaks out to new all-time highs after the company guided Q4 revenue well above expectations. The robotic surgery leader, which had been contending with supply chain issues and COVID-related headwinds, especially in China, has put those issues in the rearview mirror and is now capitalizing on some key growth catalysts, most notably including strong demand for its new da Vinci 5 system.
- In March 2024, ISRG received FDA clearance for its da Vinci 5 robotic system, but the initial rollout of that system was limited as the company optimized its manufacturing capacity and worked through supply chain bottlenecks. In Q3, though, the ramp up gained steam with ISRG placing 110 da Vinci 5 robots, up from 70 placements in Q2. That momentum continued into Q4, illustrated by the company placing 174 da Vinci 5 systems, which feature several notable upgrades from the last version, such as Force Feedback technology and more realistic 3D imaging.
- Similar to the razor/razorblade model, more systems sales for ISRG leads to higher sales of instruments and accessories. With total system sales increasing by 19% yr/yr to 493, Q4 instruments and accessories revenue grew by an estimated 23% yr/yr to $1.41 bln.
- On neither a positive nor negative basis, ISRG is no longer experiencing any impact on procedure volume due to COVID-19. A resurgence in COVID-19 infections across parts of China pressured procedure volume growth in various periods in 2023 and 2024, while the unwinding of a procedure backlog in the U.S. due to patients delaying treatment during the pandemic has now fully played out. Underlying procedure demand is healthy, as evidenced by an 18% increase in procedures in Q4, driven by strength in general surgery procedures in the U.S. (+19%) and international procedure growth of 23%.
- The one hiccup, though, is that ISRG expects global da Vinci procedure growth to slow to 13-16% in 2025 after growing by 17% in 2024. However, the company seems to be taking a conservative approach with its outlook given the momentum for da Vinci 5, and the reaction in the stock suggests that the market is betting that is indeed the case.
The main takeaway is that after a sluggish start, ISRG's da Vinci 5 system is gaining strong adoption, providing the company with a potent growth catalyst. It's worth noting, though, that the stock is quite expensive with a 1-year forward P/E that's now approaching 70x, leaving little room for error when ISRG reports earnings and issues guidance on January 23.
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