Market Snapshot
| Dow | 44025.81 | +537.98 | (1.24%) | | Nasdaq | 19756.78 | +126.58 | (0.64%) | | SP 500 | 6049.24 | +52.58 | (0.88%) | | 10-yr Note |
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| | NYSE | Adv 2258 | Dec 564 | Vol 1.07 bln | | Nasdaq | Adv 3063 | Dec 1378 | Vol 8.04 bln |
Industry Watch
| Strong: Utilities, Materials, Industrials, Health Care, Real Estate, Consumer Discretionary |
| | Weak: Energy |
Moving the Market
--Relief that Trump's first day in office didn't feature any decisive tariff action against China (though he did say he is thinking 25% tariff rate for Mexico and Canada starting Feb. 1)
--Better-than-expected earnings reports from 3M and D.R. Horton
--Sliding Treasury yields
--Weakness in Apple following two analyst downgrades and Bloomberg report suggesting iPhone sales fell 18% in China in December quarter
--CBS News reports $500 billion AI infrastructure initiative to be announce by President Trump
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Closing Stock Market Summary
21-Jan-25 16:20 ET
Dow +537.98 at 44025.81, Nasdaq +126.58 at 19756.78, S&P +52.58 at 6049.24
[BRIEFING.COM] Today was the first trading day with President Trump officially (back) in office, and it can be written that it was a good start for his administration in term's of the stock market's performance. The latter rallied on the understanding that a barrage of executive orders following yesterday's inauguration did not include any tariff actions against China.
That was deemed a relief by stock market participants who, nonetheless, still had to digest the president's added observation that he is thinking of 25% tariffs for Canada and Mexico starting February 1. It was not lost on stock market participants either that tariff actions against China are likely in the offing, but they seemingly resolved to take things one day at a time and they liked what they didn't hear yesterday on the tariff front.
The Treasury market seemed to as well, which was a big help for stocks today. The inflation-sensitive 10-yr note saw its yield drop another four basis points to 4.57% after hitting 4.80% a week ago.
That calm response paved the way for carryover buying interest that was broad based and also forged on 3M's (MMM 146.94, +5.91, +4.2%) better-than-expected earnings results, a CBS News report indicating President Trump will be announcing a $500 billion AI infrastructure initiative today that involves OpenAI, Softbank, and Oracle (ORCL 172.59, +11.56, +7.2%), and presumably some fear of missing out on further gains.
The gains were all the more remarkable given that they didn't include Apple (AAPL 222.64, -7.34, -3.2%), Tesla (TSLA 424.07, -2.43, -0.6%), or Microsoft (MSFT 428.50, -0.53, -0.1%). Apple was a real outlier today, feeling the pinch of analyst downgrades at Jefferies and Loop Capital, and a Bloomberg report suggesting its iPhone sales dropped 18% in China during the December quarter.
The S&P 500 energy sector (-0.6%) for its part was also an outlier. It was the only sector to record a loss, which followed President Trump's declaration of a national energy emergency that will allow for increased oil and gas production. WTI crude futures settled 1.7% lower at $75.99 per barrel, pressured by the notion that a "drill, baby, drill" approach could create too much supply.
The other 10 S&P 500 sectors, though, were on board with the rally effort. The industrials sector (+2.0%) topped today's performance rankings along with the real estate (+1.8%), health care (+1.7%), utilities (+1.6%), and materials (+1.3%) sectors in a predominately pro-growth tape.
Accordingly, small-cap and mid-cap stocks outperformed their larger brethren, value stocks as a group outperformed growth stocks, and breadth overwhelmingly favored advancers over decliners at the NYSE and Nasdaq.
The major indices all closed at, or near, their highs for the session on a day that was devoid of notable economic data.
Nasdaq back on track
21-Jan-25 15:25 ET
Dow +488.02 at 43975.85, Nasdaq +124.45 at 19754.65, S&P +48.56 at 6045.22
[BRIEFING.COM] When the market opened today, the Nasdaq Composite was a notable laggard thanks to the weight of the losses seen in Apple (AAPL 221.43, -8.55, -3.7%). The Nasdaq (+0.6%), however, has overcome Apple's issues and is now sporting a comfortable gain, helped by the nice intraday surge seen in Oracle (ORCL 172.55, +11.52, +7.2%).
Earlier, it was reported by CBS News that President Trump is going to announce a $500 billion AI infrastructure initiative today that involves Open AI, Softbank, and Oracle.
This news has obviously generated some excitement around the AI trade that is also benefiting NVIDIA (NVDA 141.28, +3.57, +2.6%), which, in the wake of today's disparate price action, has surpassed Apple as the largest U.S. stock by market capitalization.
Equal-weighted S&P 500 still a go-to investment
21-Jan-25 15:00 ET
Dow +455.46 at 43943.29, Nasdaq +121.06 at 19751.26, S&P +46.24 at 6042.90
[BRIEFING.COM] The major indices continue to adhere to their winning form, underpinned by the same broad-based buying interest that has persisted since the opening bell.
The 10-yr note yield has been holding steady with modest gains throughout today's trade as well. The 10-yr note yield is down four basis points to 4.57% as the cash session in the Treasury market draws to a close.
The U.S. Dollar Index for its part has been on the defensive all day. It is currently down 1.2% to 108.07 in a move that has also been supportive in general for stocks of multinational companies.
Elsewhere, the equal-weighted S&P 500 (+1.0%) continues to be a go-to investment in early 2025, as participants are presumably attracted to its lower valuation vis-a-vis the market cap-weighted S&P 500.
S&P 500 gains with Vistra, Prologis leading; Walgreens drops 13% on DoJ lawsuit
21-Jan-25 14:30 ET
Dow +478.14 at 43965.97, Nasdaq +130.44 at 19760.64, S&P +50.03 at 6046.69
[BRIEFING.COM] The S&P 500 (+0.83%) is in second place on Tuesday afternoon, up about 50 points.
Briefly, S&P 500 constituents Vistra Corp. (VST 186.34, +15.48, +9.06%), Prologis (PLD 116.87, +7.39, +6.75%), and NRG Energy (NRG 111.11, +6.60, +6.32%) pepper the top of the standings. VST and NRG move higher after sell side analyst comments, and PLD hits a seven-week high after earnings.
Meanwhile, embattled pharmacy company Walgreens Boots Alliance (WBA 10.88, -1.64, -13.10%) is once again the day's top laggard, continuing to fall after reports late Friday that the company was the subject of a DoJ lawsuit alleging it dispensed millions of unlawful prescriptions.
Gold higher on Tuesday as dollar dips
21-Jan-25 14:00 ET
Dow +464.77 at 43952.60, Nasdaq +142.39 at 19772.59, S&P +51.03 at 6047.69
[BRIEFING.COM] The Nasdaq Composite (+0.73%) is at the bottom of the standings on Tuesday afternoon.
Gold futures settled $10.50 higher (+0.4%) to $2,759.20/oz, soaring to a two-month high as the dollar weakens amid tariff uncertainty under Trump.
Currently, the U.S. Dollar Index is down -0.1% to $107.98.
Apple's woes in China continue as iPhone sales contract during the holiday season (AAPL)
Apple (AAPL -4%) breaks to four-month lows today following a Bloomberg report that iPhone sales slid by 18% in China during the holiday season. Also piling on the selling pressure are two separate downgrades today, one at Loop Capital and another at Jefferies. Shares are now down around 15% from all-time highs reached in late December as market participants grow worried about deteriorating iPhone demand in China amid economic and competitive concerns.
Earlier this month, AAPL began offering discounts on new iPhones, marketing up to around $110 off certain models in China to spur demand. While the news was moderately troubling, given how the newest iPhone lineup was released just three months earlier, it followed a recent pattern from the tech giant. For instance, throughout 2024, AAPL announced various incentives and discounts on iPhones in China to stimulate sales. While today's report does not indicate whether AAPL's demand stimulation attempts worked as it centers on holiday sales, it adds to previous worries about the iPhone losing its appeal in China.
- During the DecQ, AAPL's top competitor, Huawei, reportedly posted a 15.5% lift in sales yr/yr, supported by its Nova 13 and Mate 70 series phones. Huawei's growth also bucked a broader trend in China, as smartphone sales edged 3.2% lower during the quarter.
- Competitive forces are not exclusive to China. Last week, Bloomberg noted that iPhone sales contracted by around 5% worldwide during DecQ and relinquished market share, reflecting a global trend surrounding handset users itching for newness as they turn toward Chinese OEMs. Even Samsung (SSNLF) found the competition formidable, giving up market share last year to alternative Android-powered brands.
- Not helping AAPL is its lack of AI features. The Apple Intelligence tools already rolled out in the U.S. and other countries are unavailable in China until AAPL finds a local partner to provide the AI infrastructure. Reports indicate that AAPL has been in discussions with several China tech giants, including Baidu (BIDU) and Tencent Holdings (TCEHY), but nothing has yet materialized.
- Still, Samsung's similar headwinds highlight that the iPhone's lack of AI features may not be the leading culprit. Instead, design, technology, and other hardware features might be holding AAPL back. For instance, Huawei manufactures a tri-fold smartphone, which saw over 6 mln in preorders late last year. Meanwhile, Xiaomi (XIACF) mentioned in November that the Pro version of its latest handset sold quicker than the standard version, suggesting a greater appetite for more advanced screen and camera technology since prices are relatively comparable to the iPhone 16 Pro Max.
AAPL's woes in China, battling on two fronts as it contends with economic and competitive headwinds, are not letting up. As a result, investors are sending shares toward their 200-day moving average (217.27) for the first time since May. While AAPL's correction does offer an attractive entry point for buy-and-hold investors, it is worth pointing out that near-term turbulence could persist, particularly if economic activity begins to soften in AAPL's other markets, including the U.S.
3M adheres to turnaround plan as new product launches and cost cuts lead to upside Q4 results (MMM)
3M (MMM) is breaking out to its highest levels in over three years and providing the DJIA with a boost today after exceeding 4Q24 EPS and revenue estimates while also issuing solid FY25 guidance that points to an improving demand environment. The industrial company, which has been in perpetual turnaround mode amid stagnant conditions across several of its end markets, is making some meaningful strides under recently appointed CEO William Brown, as illustrated by the fact that each of its business segments achieved positive organic sales growth in Q4.
Furthermore, with MMM's restructuring program now nearly complete -- approximately 90% of targeted cost savings have been reached -- the company is benefitting from improved productivity and efficiencies. As a result, adjusted operating margin of 19.7% came in better than MMM had anticipated, driven by stronger organic growth and productivity gains. For the full year, adjusted operating margin was up 280 bps to 21.4%.
- On paper, MMM's 25% yr/yr total revenue decline in Q4 looks troubling, but the steep drop is due to the company's spin-off of its healthcare unit, Solventum, last April. Therefore, organic sales, which strips out the impact of divestitures and acquisitions, is a far more useful metric in terms of assessing actual demand. For the fourth consecutive quarter, MMM generated positive organic sales growth at +2.1% in Q4, led by its Safety & Industrial segment.
- Fueled by healthy demand for roofing granules and industrial tapes and adhesives, organic sales grew by 2.4% for Safety & Industrial, representing the segment's third consecutive quarter of growth. Looking ahead, MMM expects this level of growth to continue for Safety & Industrial, helping to underpin company-wide organic sales growth of 2-3% in FY25.
- One of Mr. Brown's key initiatives after taking the helm as CEO on May 1, 2024, has been to reinvigorate MMM's product innovation machine, which had been stifled under a constant stream of litigation issues. With MMM making substantial progress on the litigation front over the past two years -- in August 2023 it agreed to pay $6 bln to resolve litigation over its Combat Arms Earplugs, as one example -- the company has been free to pour more resources into product development. In Q4, new product launches were up 32%, with the Transportation & Electronics division particularly active during the quarter.
- New product launches and spec-wins helped push organic sales higher by 2.0% for Transportation & Electronics. Unsurprisingly, the aerospace end market was a standout, up 25%, as robust travel demand continues to support the industry. Additionally, electronics grew by high-single-digits, thanks to an upswing in demand for mobile phones.
- Perhaps the most encouraging item in the earnings report was the swing to positive growth for the struggling Consumer segment. Sluggish consumer spending and the hybrid/work-from-home trend has weighed on this segment for many quarters -- in Q3 and Q2, organic sales decreased by 0.7% and 1.4%, respectively -- but a rebound in the home improvement market helped to snap that losing streak. In Q4, organic sales increased by 1.2%.
The main takeaway is that MMM's long-awaited turnaround continued to gain traction in Q4 as it looks to put its troubled, litigation-filled past in the rearview mirror. While business isn't necessarily booming for MMM, a return to organic sales growth for each of its business groups represents a major improvement.
Prologis heads higher on earnings beat; says its market is nearing an inflection point (PLD)
Prologis (PLD +4%) is trading nicely higher after wrapping up FY24 on a strong note. This REIT, which focuses on logistics facilities (warehouses; largest customers include AMZN, HD, FDX), reported core FFO, excluding net promote income/expense, that was 10.1% higher yr/yr and was above analyst expectations. Rental revenue rose 10.7% yr/yr to $1.95 bln, roughly in-line, but a noticeable improvement from Q3's +6.9% increase.
- This industry has been weak in recent quarters. Prologis noted on its Q3 call that its industry is located on the consumption end of the supply. As such, if consumer spend slows, then PLD's customers expand less. PLD said in October that it had seen customers make fewer decisions around expanding and make more decisions around contracting or consolidating where they can.
- The outlook in today's report struck us as more upbeat. That was evident when we got our first look at 2025 core CFO guidance (excluding net promote income/expense), which was in-line. The 2025 guidance of $5.70-5.86 was a nice improvement from $5.53 in FY24. Investors appear to be reacting favorably to the solid guidance and breathed a sigh relief.
- It seems that some customers were waiting to see how the election played out before expanding. Prologis said this morning that post-election leasing activity has been strong and that its ongoing conversations with customers support PLD's expectation that the market is nearing an inflection point. We suspect this positive commentary was just as important as the guidance.
- Prologis also made news recently when it announced last month that it sold a data center development in its Chicago market to HMC Capital. Prologis, in partnership with Skybox Datacenters, is converting one of its warehouses into a high-capacity, turnkey data center with a marketed capacity of 32MW. Because it has the world's largest portfolio of warehouses, PLD sees great potential for warehouse conversions in key markets. With 490 MW under construction, Prologis sees itself as one of the leading data center developers in the industry.
Prologis saw its shares generally trade lower in 2024 given some industry softness. However, the 2025 guidance and its comments about a strong uptick in leasing activity post-election has resulted in a nice gain today. Saying that its market was nearing an inflection point is good to hear as well and likely eased investor concerns. Also, the company sounds pretty bullish on its ability to transform some warehouses into data centers and benefit from the data center buildouts going on. Given these factors and its solid 3.4% dividend yield, investors are giving Prologis a fresh look.
Charles Schwab heads toward one-year highs on solid Q4 results; sees strong growth in 2025 (SCHW)
Charles Schwab (SCHW +3%), now under new leadership in CEO Rick Wurster since January 1, gaps higher today as investors applaud another healthy top and bottom-line beat in Q4. The financial services giant, which derives over 75% of sales from investor services, has reported back-to-back quarters of impressive growth, showcasing a long-awaited emergence from a transition year as SCHW completed its largest brokerage conversion in 2024, integrating over 17 mln Ameritrade accounts.
Following muted growth in Q2 and comments surrounding relying more on off-balance sheet arrangements to house customer deposits, SCHW fell to four-month lows in July. Former CEO Walter Bettinger noted that reducing the company's overall balance sheet investment portfolio duration would unfold over the next few years, potentially generating elevated variability in earnings performance in the near term. Mr. Bettinger added that the move would reduce the company's capital levels volatility and the dependency on supplemental borrowing in the event of rising interest rates.
Since then, SCHW has performed well, powering its excellent rally, with shares rebounding by over +30% since July lows.
- In Q4, adjusted EPS ballooned by 48.5% yr/yr to $1.01, SCHW's best quarter of profitability since 4Q22, before the regional banking crisis in early 2023. Revenue growth accelerated to 19.5% yr/yr to $5.33 bln from a mild +5.2% last quarter and virtually flat growth in Q2.
- Net new assets swelled by 51% yr/yr in the quarter, ending the year 20% higher, consistent with the 21% increase in FY23. New brokerage account openings rose by 23% to 1.1 mln, ending the year with 36.5 mln active accounts. Meanwhile, trading activity was robust during the quarter, giving rise to an active client base with record engagement.
- It was not just a healthy market that underpinned SCHW's excellent numbers, although that certainly played a role. The company's platform and products helped differentiate itself against stiff competition, defending against numerous alternatives from Robinhood (HOOD), Interactive Brokers (IBKR), and many privately-held brokerages and financial services organizations. For instance, on the trading side, thinkorswim adoption (one of SCHW's trading platforms) enjoyed a 60% surge in adoption yr/yr.
- SCHW is optimistic about 2025 being another year of solid growth. CEO Rick Wurster commented that M&A remains an important metric but is also confident in organic growth. Furthermore, revenue and earnings are projected to remain strong as the company's supplemental borrowing diminishes significantly in 2025.
SCHW exited a relatively volatile year on a high note. The main message CEO Rick Wurster conveyed during the conference call today was that SCHW was entering 2025 with tremendous growth momentum, anticipating a strong year ahead. The company projected meaningful asset growth supporting a possible return to its organic growth rate goal of +5-7%. While a higher-for-longer view from the Federal Reserve, alongside potential tariffs from the Trump administration, could produce market volatility, hindering SCHW's ability to reach its targets, recent quarterly performances set an encouraging tone for 2025.
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.
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