Market Snapshot
| Dow | 43487.83 | +334.70 | (0.78%) | | Nasdaq | 19630.20 | +291.91 | (1.51%) | | SP 500 | 5996.66 | +59.32 | (1.00%) | | 10-yr Note |
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| | NYSE | Adv 1707 | Dec 1032 | Vol 1.17 bln | | Nasdaq | Adv 2719 | Dec 1579 | Vol 8.02 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services |
| | Weak: Health Care, Real Estate |
Moving the Market
--Speculative energy in front of President Trump's inauguration on Monday
--China reports better than expected retail sales, industrial production, and GDP data; U.S. reports better than expected housing starts, building permits, and industrial production
--Gains in mega-cap stocks
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Closing Stock Market Summary
17-Jan-25 16:20 ET
Dow +334.70 at 43487.83, Nasdaq +291.91 at 19630.20, S&P +59.32 at 5996.66
[BRIEFING.COM] The stock market put its rally cap back on Friday, paced by mega-cap leadership, growth optimism, and a speculative buzz ahead of Monday's inauguration of Donald J. Trump as the 47th President of the United States of America.
That buzz was a catalyst for cryptocurrencies and crypto-related stocks, which advanced on a Bloomberg report that President Trump is planning an executive order to declare cryptocurrency a national policy priority. That report was met with other reports that suggested the incoming president might potentially announce a cascade of executive orders soon after taking office.
We heard from President-elect Trump today that he had a phone call with China's President, Xi Jinping, that was described as "a very good one" that touched on topics like trade, fentanyl, and TikTok. Coincidentally, the Supreme Court today upheld the TikTok ban that is slated to go into effect Sunday; however, the market remained inclined to think that President Trump will order a pause on that ban for 90 days.
Separately, there was some speculation that Elon Musk could purchase TikTok. That speculation helped drive Tesla (TSLA 426.50, +12.68, +3.1%), which was one of several mega-cap stocks that carried the market today. The Vanguard Mega-Cap Growth ETF (MGK) ended the day up 1.4% after being up as much as 1.8%.
The influence of the mega-cap stocks was evident in the consumer discretionary (+1.7%), information technology (+1.7%), and communication services (+1.1%) sectors, which outperformed the market. In fact, they were the only sectors that outperformed the S&P 500, which closed above its 50-day moving average (5,966).
Still, every S&P 500 sector was higher today with the exception of the real estate sector (-0.04%) and the health care sector (-0.7%). The latter was upended by a weak showing from the drug stocks, which were undercut by the Department of Health and Human Services announcing 15 additional drugs for Medicare's price negotiations, including Novo Nordisk's (NVO 78.71, -4.36, -5.3%) Ozempic and Wegovy.
Small-cap and mid-cap stocks finished the day higher but trailed the large-cap stocks, which were today's favored trades.
Elsewhere, Treasury yields were little changed from Thursday's settlement, but they failed to hold some overnight gains following the release of stronger-than-expected housing starts, building permits, and industrial production in December. Those reports followed on the heels of China posting better-than-expected retail sales, industrial production, and GDP data.
Reviewing today's economic data:
- Total housing starts increased 15.8% month-over-month in December to a seasonally adjusted annual rate of 1.499 million units (Briefing.com consensus 1.318 million). Total building permits were down 0.7% month-over-month to a seasonally adjusted annual rate of 1.483 million (Briefing.com consensus 1.454 million).
- The key takeaway from the report is that there were gains in single-unit starts (+3.3%) and single-unit permits (+1.6%), which is encouraging for a housing market that needs new supply to compensate for the limited inventory in the existing home market.
- Total industrial production increased 0.9% month-over-month in December (Briefing.com consensus 0.3%) following an upwardly revised 0.2% increase (from -0.1%) in November. The capacity utilization rate jumped to 77.6% (Briefing.com consensus 77.0%) from an upwardly revised 77.0% (from 76.8%) in November. Total industrial production increased 0.5% yr/yr while the capacity utilization rate was 2.1 percentage points below its long-run average.
- The key takeaway from the report is that industrial production showed some rebound verve after being depressed in recent months by the hurricanes and the Boeing strike.
U.S. markets will be closed Monday for Martin Luther King, Jr. Day.
Small caps taking a backseat today
17-Jan-25 15:25 ET
Dow +392.78 at 43545.91, Nasdaq +311.09 at 19649.38, S&P +67.73 at 6008.69
[BRIEFING.COM] Heading into the closing stretch before the three-day weekend, and the large-cap indices continue to exhibit relative strength. Notably, the Russell 2000, which is the domain of small-cap stocks, is up just 0.1% after being up 1.0% shorty after today's open.
The Russell 2000, though, can still claim a performance edge over the market cap-weighted S&P 500 this week. It is up 3.7% versus 3.1% for the S&P 500; however, the equal-weighted S&P 500 is up 4.1% this week.
Economic data played an important role in this week's trading. The economic calendar won't have the same cachet next week, yet it will still feature some attention-grabbing reports that include weekly initial jobless claims, preliminary January S&P Global US Manufacturing and Services PMIs, and December existing home sales.
As a reminder, U.S. markets will be closed Monday for Martin Luther King, Jr. Day.
Volatility down big this week
17-Jan-25 14:55 ET
Dow +372.34 at 43525.47, Nasdaq +309.97 at 19648.26, S&P +64.70 at 6005.66
[BRIEFING.COM] The Dow, Nasdaq, and S&P 500 are off their best levels of the day, but have retained the bulk of their earlier gains.
Today's trends remain intact: mega-cap stocks are outperforming; every S&P 500 sector is up except health care (-0.3%); large-cap stocks are outperforming small-cap stocks; and growth is outperforming value.
The consumer discretionary sector (+2.3%) is the biggest gainer among the S&P 500 sectors, steered by Amazon.com (AMZN 225.49, +4.82, +2.2%) and Tesla (TSLA 437.46, +23.64, +5.7%), the latter of which is getting an added boost from speculation in a Yahoo Finance report that Elon Musk could purchase TikTok.
While stocks have surged this week as market rates have come down, volatility has collapsed. The CBOE Volatility Index is down 18.1% to 16.00.
S&P 500 in second place; Intel, Plantir among top gainers
17-Jan-25 14:30 ET
Dow +386.47 at 43539.60, Nasdaq +324.34 at 19662.63, S&P +67.96 at 6008.92
[BRIEFING.COM] The S&P 500 (+1.14%) is in second place on Friday afternoon, up about 68 points.
Briefly, S&P 500 constituents Intel (INTC 21.41, +1.74, +8.85%), Palantir Technologies (PLTR 72.05, +2.81, +4.06%), and Deere (DE 454.60, +15.49, +3.53%) pepper the top of today's standings. INTC is up +8% amid reports of potential acquisition and U.S. government interest in GlobalFoundries (GFS 42.83, +1.90, +4.64%) partnership, PLTR is one of a plethora of Cantor Fitzgerald initiations out this morning (Neutral, tgt $72).
Meanwhile, credit score rating firm Fair Isaac (FICO 1878.37, -91.31, -4.64%) is among the worst-performing constituents.
Gold holds weekly gain despite minor dip, supported by weaker dollar and policy uncertainty
17-Jan-25 14:00 ET
Dow +407.79 at 43560.92, Nasdaq +318.15 at 19656.44, S&P +67.70 at 6008.66
[BRIEFING.COM] The Nasdaq Composite (+1.65%) holds firm atop the major averages, having shaved a few points off its levels over the prior half hour.
Gold futures settled $2.20 lower (-0.1%) to $2,748.70/oz, ultimately ending up +1.2% higher on the week aided in part by a modest dip in the greenback, while uncertainty over President-elect Trump's policies fuels weekly rise.
Currently, the U.S. Dollar Index is up about +0.3% to $109.30.
Western Digital's updated Q2 outlook removes worst-case scenarios (WDC)
During a Barclays conference in mid-December, data storage and memory company Western Digital (WDC) reminded analysts and investors that it expects the choppiness that it has encountered recently to continue over the next few quarters. The choppiness that WDC telegraphed was on display last night after the company issued an updated Q2 outlook, forecasting EPS to come in at the lower end of its prior guidance range of $1.75-$2.05 as it continues to contend with a challenging pricing environment in its flash business, which has experienced softness in the PC OEM and consumer end markets.
- Like fellow memory company Micron (MU), WDC is seeing robust demand in cloud and data center, fueling strong growth in its HDD business -- revenue soared by 85% yr/yr in HDD in Q1 -- with demand for its products exceeding supply. This strength is expected to continue in FY25, bolstered by rising adoption for WDC's UltraSMR product line among cloud customers. However, since WDC merely reaffirmed its Q4 revenue guidance, forecasting revenue to come in at the midpoint of its prior guidance range of $4.20-$4.40 bln, it's evident that the Consumer segment (revenue was -7% in Q1) hasn't turned a corner yet.
- Rewinding to WDC's Q1 earnings call on October 24, executives commented that a recovery in the Consumer and Client end markets, which include PCs, notebooks, set-top boxes, wearable devices, and automotive applications, is anticipated to materialize through CY25. The fact that WDC didn't cut its revenue guidance is providing a sigh of relief, but the lack of improvement also indicates that this recovery hasn't gained much steam yet.
- In addition to the updated guidance, WDC also announced that its CFO, Wissam Jabre, will be stepping down following the completion of the planned spin-off of the flash business in late February. Recall that in October 2023, the company's Board of Directors green-lighted a plan to separate the flash and HDD businesses into two independent publicly traded companies. This separation, which was previously expected to be completed in 2H24, should help to unlock value by allowing the market to value each business independently of each other.
The main takeaway is that WDC's updated guidance removes some uncertainty and takes the worst-case scenarios off the table ahead of its Q2 earnings report on January 29. With that said, the company is still grappling with some stiff headwinds in the flash business, offsetting strength in data center. When WDC reports earnings in about two weeks, the focal point will rest on its guidance for Q3 as participants look for signs of a recovery in the struggling consumer business.
Qorvo surges on a 7.7% stake from Starboard Value; handset market headwinds still linger (QRVO)
Qorvo (QRVO +13%) is surging today after activist investor Starboard Value disclosed a 7.7% stake in the chipmaker. The news has lit a fire under QRVO, pushing its shares to their best levels since before a considerable sell-off in late October triggered by dismal Q3 (Dec) and FY25 (Mar) guidance.
The concerning outlook was prompted by an unfavorable mix within its smartphone business and a shift among Android (GOOG) smartphone users toward entry-tier devices at the expense of mid-tier. QRVO is a major supplier of mobile components, with Apple (AAPL) as its largest customer, comprising nearly half of its FY24 revenue. Without customers upgrading often and gravitating toward Pro models, where QRVO commands a leadership position, quarterly performance takes a hit. As a result of the ongoing trade-down to lower-tier models, the company enacted manufacturing and operating expense reductions last quarter.
However, today's confirmation of Starboard's active stake is acting as a significant vote of confidence in QRVO's sturdy positioning in the handset market and its ability to leverage this position and return to growth.
- Since QRVO's alarming outlook, some light has started to peak through the clouds. The company commented last month that it secured enough wins to date to fuel its confidence in content growth expanding yr/yr going forward. QRVO also noted that consumers should ultimately gravitate toward premium handsets over time.
- QRVO's cost-cutting actions continue to take shape. While the company anticipated gross margins to dip slightly yr/yr in FY25, possible tailwinds are materializing heading into FY26. For instance, earlier this week, QRVO closed on the previously announced divestiture of its silicon carbide business, a margin accretive move that will carry into FY26. Other cost-reduction initiatives underpin QRVO's confidence in achieving its 50% gross margin target over time, a massive improvement over the 42.6% margins delivered in Q2 (Sep).
- Starboard Value's history centers around enacting meaningful changes to spur growth. While QRVO's ambitions are notable, the hedge fund may want to accelerate the company's plans, potentially finding alternative routes to generate sales growth while the handset market deals with stubborn economic headwinds.
Starboard Value's active stake in QRVO is encouraging as the fund views the company's depressed stock price as a valuable investment opportunity. While QRVO's share price was trading near five-year lows prior to Starboard's stake, there are concerns to be wary of over the near term that could keep selling pressure active. Most notably, Apple has been running into some troubling obstacles lately, as growth in China languishes while the company's AI features do not appear to resonate strongly with consumers, potentially hindering upgrades and quarterly growth.
J.B. Hunt Transport trucking lower as soft freight rates weigh on results once again (JBHT)
For the eighth time in the past nine quarters, trucking and logistics company J.B. Hunt (JBHT) fell short of EPS expectations in Q4 as the company continues to navigate through what it calls a "freight recession." Although JBHT experienced record intermodal volumes in each of the past two quarters, the persistently weak pricing environment due to higher capacity and reduced freight rates weighed on margins and profits once again. For the quarter, GAAP operating margin ticked higher by 40 bps yr/yr to 6.6%, but after excluding pre-tax charges for intangible asset impairments, JBHT's operating income and margin declined.
Compounding the issue, JBHT and its competitors are facing inflationary cost pressures related to rising insurance costs, which the company expects to continue in 2025. With no cost relief on the immediate horizon, and with each of JBHT's segments contending with various revenue headwinds -- revenue decreased in every segment in Q4 -- the company is forecasting 1Q25 operating income to fall by 20-25% yr/yr.
- Starting with Intermodal, the company's largest segment at nearly half of total revenue, volumes improved by 5% yr/yr, driven by strength in the Eastern and Transcontinental networks. However, unfavorable freight mix and ongoing pressure on freight rates led to a 2% drop in revenue to 1.6 bln. The good news is, JBHT anticipates that capacity will expand more in 2025 while it works to reprice its largest books of business.
- Turning to Dedicated Contract Services (DCS), which designs and provides supply chain solutions, the downsizing of customer fleets combined with some account losses led to a 5% drop in revenue to $839 mln. Specifically, the company had 605 fewer revenue producing trucks in Q4 compared to last year, and the trucks that were in service had a 1% decline in productivity, as expressed through revenue per truck per week.
- The rough ride continued for JBHT's brokerage segment, Integrated Capacity Solutions (ICS), as revenue dove by 15% to $308 mln, resulting in an operating loss of $(21.8) mln. In FY24, the ICS segment incurred $35 mln of expenses related to the integration of BNSF Logistics, putting additional pressure on earnings. Those expenses will not repeat in FY25 and with the integration now in the rearview mirror, JBHT believes that brighter days are ahead for ICS as its focus returns to growth.
Overall, the story didn't change much for JBHT in Q4 as the freight environment remained quite challenging. However, after investing in its business during this downturn, including through the BNSF Logistics and Walmart Intermodal acquisitions, the company is in good position to capitalize once pricing improves, perhaps by 2H25.
Fastenal looking to overcome a lethargic start today following its Q4 earnings miss (FAST)
Fastenal (FAST +2%) is overcoming a lethargic start today after missing earnings estimates on mild revenue growth in Q4. The industrial products distributor, supplying fasteners, screws, bolts, etc., to manufacturers and construction companies, exited the previous quarter noticing moderate upward momentum as September showed notable improvements over July and August. However, this momentum was stunted during Q4, giving way to the volatile economic backdrop. Industrial activity remained sluggish in the quarter, particularly among many of FAST's largest customers, which enacted sharp production cuts during the final two weeks of December.
- FAST warned of production halts during its Q3 earnings call in October, cautioning that while regional managers expressed an improved tone compared to the previous quarter, many markets remained weak. The company added that elevated uncertainty persisted over how plant shutdowns may unfold during the holiday season due to structural economic weaknesses, such as the PMI (Purchasing Managers' Index) constantly signaling a worrying manufacturing trend. FAST also noted that it did not anticipate much change in underlying business activity in Q4.
- These predictions materialized in Q4, reflected in FAST's muted headline results, including flat EPS growth yr/yr at $0.46 and revenue growth of 3.7% to $1.82 bln, falling just short of estimates. FAST's daily sales rate (DSR) improved by 2.1%, lower from the company's September DSR of 3.2%. However, it did represent a 20 bp bump from Q3's 1.9%. Non-fasteners' DSR improved by 4.3%, offsetting a 1.4% drop in fasteners' DSR and pushing the total rate positive in the quarter. Also noteworthy was the pace of decline in the company's fastener line eased.
- National accounts -- categorized as organizations with a national, multi-site presence -- observed a 4.2% uptick in DSR during Q4, while the rate contracted by 1.0% in non-national accounts -- regional, local, and government customers. Due to the ongoing divergence between the two types of accounts, plant shutdowns by national customers disproportionately hurt FAST.
- However, on the bright side, FAST signed 56 new Onsite locations, which is a key differentiating factor that allows the company to establish a presence directly or near a customer's facility. While the number brought FAST shy of its FY24 goal, signing 358 instead of its 375-400 target, it still represented a decent 10% jump from FY23 and stayed consistent with the annual signings during 2019 and 2022.
Muted industrial activity remained the theme in Q4, carrying over from the last quarter. However, unlike the upbeat response despite shaky economic conditions following Q3 results, investors are a little more apprehensive today. We believe this is mostly attributed to the soft top and bottom-line performance from FAST in the quarter more so than commentary surrounding relatively weak end market demand, particularly since management's comments were largely unchanged from last quarter. Still, FAST has proven its resilience to concerning comments in the past, making it worth keeping on the radar for a potential bounce.
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.
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