Market Snapshot
| Dow | 44851.41 | +137.77 | (0.31%) | | Nasdaq | 19815.49 | +391.75 | (2.02%) | | SP 500 | 5985.76 | +55.42 | (0.93%) | | 10-yr Note | -1/32 | 4.55 |
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| | NYSE | Adv 1215 | Dec 1527 | Vol 972 mln | | Nasdaq | Adv 2157 | Dec 2163 | Vol 7.1 bln |
Industry Watch
| Strong: Information Technology, Communication Services, Consumer Discretionary |
| | Weak: Utilities, Real Estate, Consumer Staples, Energy, Health Care |
Moving the Market
-- NVIDIA (NVDA) trading higher after yesterday's sharp losses
-- Other mega caps trading higher, boosting index performance
-- Responding to earnings news, yet still hesitation in play in front of mega cap results
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Closing Summary
28-Jan-25 16:25 ET
Dow +137.77 at 44851.41, Nasdaq +391.75 at 19815.49, S&P +55.42 at 5985.76
[BRIEFING.COM] The stock market recovered a bit today following sharp declines yesterday in response to the news about DeepSeek. The S&P 500 closed 0.9% higher than its prior close and the Nasdaq Composite jumped 2.0%, closing near their best levels of the day. The Dow Jones Industrial Average (+0.3%) and Russell 2000 (+0.2%) also closed in positive territory.
The upside action was led by mega caps and chipmakers, and NVIDIA (NVDA 128.86, +10.44, +8.8%) was chief among them after logging its largest single-day loss in market capitalization ever in yesterday's session. Shares were trading higher through most of the session, but buying picked up in the afternoon trade.
Gains were still muted, though, compared to the scope of yesterday's declines. NVDA shares plunged 17% yesterday and the PHLX Semiconductor Index (SOX), which closed 1.1% higher today, sank 9.2% yesterday.
Microsoft (MSFT 447.05, +12.49, +2.9%) and Meta Platforms (META 674.33, +14.45, +2.2%), which report quarterly results after Wednesday's close, along with Apple (AAPL 238.26, +8.40, +3.7%), which reports earnings after Thursday's close, were among the top performers in today's trade.
The buying interest in mega caps and semiconductor shares didn't pass through to the broader equity market. The equal-weighted S&P 500 closed 0.5% lower and eight of the 11 S&P 500 sectors registered losses ranging from 0.2% (financials) to 1.5% (consumer staples).
This price action was influenced by mixed responses to earnings news from names like Royal Caribbean (RCL 265.25, +28.43, +12.0%), Boeing (BA 177.78, +2.62, +1.5%), General Motors (GM 50.04, -4.88, -8.9%), and Lockheed Martin (LMT 457.45, -46.24, -9.2%).
- Dow Jones Industrial Average: +5.4% YTD
- S&P Midcap 400: +4.0% YTD
- S&P 500: +3.2% YTD
- Russell 2000: +2.6% YTD
- Nasdaq Composite: +2.2% YTD
Reviewing today's economic data:
- December Durable Orders -2.2% (Briefing.com consensus 0.4%); Prior was revised to -2.0% from -1.1%, December Durable Goods - ex transportation 0.3% (Briefing.com consensus 0.5%); Prior -0.1%
- The key takeaway from the report, though, is the understanding that new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- were up 0.5% on the heels of a 0.9% increase in November, thereby softening the disappointment of the headline number.
- November FHFA Housing Price Index 0.3%; Prior was revised to 0.5% from 0.4%
- November S&P Case Shiller Home Price Index 4.3% (Briefing.com consensus 4.2%); Prior 4.2%
- January Consumer Confidence 104.1 (Briefing.com consensus 108.1); Prior was revised to 109.5 from 104.7
- The key takeaway from the report is that consumers, in general, remained pessimistic about future employment prospects.
Looking ahead to Wednesday, market participants receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.1%)
- 8:30 ET: December advance International Goods Trade Balance (prior -$102.9 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.2%)
- 10:30 ET: Weekly crude oil inventories (prior -1.02 mln)
Treasuries settle lower
28-Jan-25 15:30 ET
Dow +144.13 at 44857.77, Nasdaq +409.56 at 19833.30, S&P +60.19 at 5990.53
[BRIEFING.COM] The stock market is building on gains heading into the close.
Separately, the 10-yr yield settled two basis points higher at 4.55% and the 2-yr yield settled two basis points higher at 4.21%.
Looking ahead to Wednesday, market participants receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.1%)
- 8:30 ET: December advance International Goods Trade Balance (prior -$102.9 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.2%)
- 10:30 ET: Weekly crude oil inventories (prior -1.02 mln)
Chipmakers benefit from buying
28-Jan-25 15:00 ET
Dow +142.23 at 44855.87, Nasdaq +410.70 at 19834.44, S&P +60.41 at 5990.75
[BRIEFING.COM] There hasn't been much up or down movement at the index level in recent trading.
The vibe under the index surface has shifted with no specific catalyst. Market breadth was negative through most of the session and it's still negative at the NYSE, but advancers are roughly in-line with decliners now at the Nasdaq.
The shift has coincided with chipmakers staging a turnaround after initial weakness. The PHLX Semiconductor Index (SOX) sports a 1.3% gain.
S&P 500 sits near high
28-Jan-25 14:30 ET
Dow +117.23 at 44830.87, Nasdaq +355.05 at 19778.79, S&P +49.98 at 5980.32
[BRIEFING.COM] The S&P 500 trades just below its session high, about 50 points above its prior close.
The equal-weighted S&P 500 trades 0.6% lower and market breadth is still negative. Decliners lead advancers by a roughly 3-to-2 margin at both the NYSE and at the Nasdaq.
Eight of the 11 S&P 500 sectors are lower with declines ranging from 0.1% (financials) to 1.7% (utilities).
NVDA leads DJIA components
28-Jan-25 14:00 ET
Dow +117.67 at 44831.31, Nasdaq +326.56 at 19750.30, S&P +47.06 at 5977.40
[BRIEFING.COM] The Dow Jones Industrial Average trades about 125 points higher, or 0.3%.
A look inside the DJIA shows NVIDIA (NVDA 126.69, +8.26, +7.0%) leading the 12 components trading higher, followed by Salesforce (CRM 363.00, +15.90, +4.6%), Apple (AAPL 238.75, +8.85, +3.9%), and Boeing (BA 180.20, +5.04, +2.9%).
Honeywell (HON 220.75, -4.96, -2.2%), Home Depot (HD 417.87, -7.00, -1.7%), and Coca-Cola (KO 62.88, -0.99, -1.6%) are the worst performing components.
Royal Caribbean sails to record highs as robust cruise demand propels Q4 EPS beat (RCL)
Following another impressive earnings report in which Royal Caribbean (RCL) cruised past Q4 EPS estimates and issued upside EPS guidance for Q1, shares are sailing to record highs and are now up by an astounding 110% on a yr/yr basis. Similar to the airline industry, cruise line operators like RCL are experiencing robust demand while benefitting from stronger pricing and moderate capacity growth. These bullish factors were on display when competitor Carnival (CCL) posted a Q4 earnings beat on December 20 that also featured record revenue and accelerating onboard spending levels.
In addition to following in the wake of CCL and delivering its own strong Q4 results, RCL also made a major announcement this morning, stating that it plans to enter the river cruise market in 2027 with an initial fleet of ten ships under its Celebrity River Cruises banner. This news has created some choppiness for shares of Viking Holdings (VIK) today, which has operated in the river cruise space with fairly limited competition since its founding in 1997. However, since VIK caters to a wealthier customer base with one of its key selling points being that its smaller ships offer a more intimate experience, the impact from RCL entering the space in two years should manageable.
- In the meantime, the more traditional cruise line industry is flourishing and is expected to be very healthy again in 2025. Thanks to the bullish industry-wide trends and RCL's effective strategy of maintaining modest capacity growth while keeping a lid on costs, gross margin yields jumped by 13.8% yr/yr. The primary catalyst for the improvement was higher pricing across all products and stronger onboard revenue as guest spending continues to exceed prior years.
- Adjusted EBITDA is another metric that's particularly useful for the cruise line industry since it strips out depreciation -- a substantial non-cash expense for cruise liners. In Q4, adjusted EBITDA came in at $1.1 bln, beating RCL's estimate of $1.05 bln, again reflecting stronger pricing and healthy close-in demand.
- Despite the macroeconomic headwinds, including stubbornly high interest rates, there is no sign of a slowdown in demand for RCL. In fact, the company experienced the best five booking weeks in its history since the end of last quarter. Additionally, RCL stated that "WAVE season" -- a period that typically runs from January through March -- is off to a record start with booked load factors matching prior years, but at higher rates. Accordingly, RCL issued a better-than-expected outlook for 1Q25, forecasting EPS of $2.43-$2.53 and a net yield increase of 4.75-5.25% in constant currency.
It's smooth sailing for RCL as the shift in consumer spending towards experiences carries on and as the company's strategy of restraining capacity while improving the on-board experience continues to pay dividends. Investors are also celebrating the company's decision to enter the river cruise industry, which has been a very lucrative market for VIK.
Boeing keeps flying high as investors focus on production instead of near term financials (BA)
Boeing (BA +3%) is trading nicely higher following its Q4 report this morning. The stock has been recovering nicely from its mid-November low of $137.03 and this report keeps the momentum going. In terms of the numbers, the aerospace giant had just issued downside guidance on January 23, so there were not a lot of surprises. As expected, Boeing reported another large loss, its 14th consecutive quarterly loss.
- Revenue in Q4 fell 30.8% yr/yr to $15.24 bln, roughly in-line with last week's guidance of $15.2 bln. Plane deliveries and financial results in Q4 were impacted by the IAM work stoppage, charges for certain defense programs, and costs associated with workforce reductions announced last year. Investors were prepared for a difficult Q4 financial result, so the shares are not likely getting punished for it.
- Our sense is that investors are focusing more on positive developments on the production front. The 737 program resumed production in Q4 following the labor strike and plans are in place to gradually increase the production rate. The numbers provide some hope. The 737 program delivered 36 airplanes in Q4, including a step up to 18 in December. Importantly, it has already delivered 33 airplanes in January with four days to go. BA expects to go above 38 per month later in the year.
- Boeing also sounds like it's going to focus on quality as much as quantity. Coming out of the strike, the company did not jump right in on building aircraft. BA spent time training the workforce, getting them up to speed and balancing the line. It was very important to get the line up in a stable manner and it's already paying dividends. Boeing also noted that it has a significant amount of inventory, both in airplanes and in supply parts. As such, it does not expect any constraints from the supply chain in terms of ramping up the 737 to 38 per month.
- The 787 program exited the year at a production rate of five per month and recently announced plans to expand its South Carolina operations. In January, the 777X program resumed FAA certification flight testing, and the company still anticipates first delivery of the 777-9 in 2026. Like the 737, BA is working to ensure the 787 production system, including the supply chain, is also stable prior to making the next rate increase.
Overall, it seems investors are focusing on the improvements on the production front and focusing less on the financial results. We suspect that will be the case in the coming quarters. We also think investors are looking a few quarters ahead on the hopes of a turnaround. Demand for air travel remains strong and while 2025 could be a rough year for BA's financials, BA has said in the past that it expects to exit 2025 with real momentum in the business as it returns to normal production rates.
General Motors skids sharply lower as uncertainty over tariffs and EV tax credit weigh (GM)
After rallying by about 8% over the past week, shares of General Motors (GM) have executed a sharp U-turn and are trading with sizable losses following the automaker's 4Q24 earnings report. Once again, GM exceeded EPS and revenue expectations -- a feat it has accomplished now in ten consecutive quarters -- although the magnitude of the Q4 earnings beat is much more modest compared to the past few quarters. Recall that when GM delivered its impressive blowout Q3 results in October, it acknowledged that some of the upside was due to a pull forward from Q4, particularly surrounding the ramp of full-size SUV production. It appears that this benefit reversed itself in Q4, leading to the smaller EPS beat.
Overall, though, GM's quarterly results were strong, bolstered by an EV business that's gaining momentum and market share. In fact, the company's EV market share nearly doubled on a yr/yr basis to 12.5%, led by healthy demand for the Chevrolet Equinox EV and the Cadillac LYRIQ, which was the best-selling electric mid-size luxury SUV in Q4. Offsetting this bullish news was GM's outlook for FY25 and the uncertainty revolving around the impact of tariffs and the potential removal of federal EV tax credit.
- While the company's FY25 EPS guidance of $11.00-$12.00 was ahead of expectations, the outlook doesn't contemplate the possible effects of tariffs or the loss of the EV tax credit. CEO Mary Barra stated that GM will adjust their outlook as needed and that the company has a plan in place to contend with various scenarios that may arise from the Trump Administration's policies.
- Further, GM is modeling a price decline of 1.0-1.5% in North America and a modest decline in wholesale volumes. As such, the company's FY25 adjusted EBIT guidance of $13.7-$15.7 bln equates to a yr/yr decline of about 1% based on the midpoint of the projected range.
- Still, GM is expecting to achieve significant profitability improvements in its EV business. Specifically, based on its forecast of 300,000 EV sales in FY25, the company sees an earnings tailwind near the low end of its $2.0-$4.0 bln EBIT target. Since its launch in 2Q24, the Equinox EV has delivered a variable profit improvement of $1,000, driven by scale and lower battery costs.
- Another positive is that the company is seeing some progress in its struggling China business. In Q4, GM posted positive equity income before restructuring costs in China as it continues to cut costs there.
GM's EV business provided a spark again while solid demand and healthy pricing for trucks and SUVs on the ICE (internal combustible engine) side also contributed to the upside Q4 results. However, the solid quarterly results are being brushed aside as GM guides for a yr/yr decline in adjusted EBIT due to an expected dip in ICE volumes and price.
Kimberly-Clark pulled higher following a weak start today on a minor Q4 earnings miss (KMB)
Following a somber start to today's trading session on weaker-than-expected Q4 earnings, Kimberly-Clark (KMB) is steadily being pulled up, trading above yesterday's highs. The household durables maker, known brands like Cottenelle and Kleenex, still delivered a healthy top-line beat. Also, KMB issued a relatively encouraging FY25 outlook, particularly when backing out FX and M&A impacts. Meanwhile, the company hiked its dividend slightly, increasing its annual yield to 3.8%.
- KMB's bottom line contracted by just under 1% yr/yr to $1.50. However, adjusted gross margins expanded by 50 bps to 35.4%, aided by productivity gains, showcasing management's pivot from margin recovery in 2023 to its new phase of margin expansion in 2024.
- Revenue inched 0.8% lower to $4.93 bln. However, this represented a decent improvement over the past three quarters, particularly Q3, when revs fell by 3.5% yr/yr, marking KMB's worst quarter since 1Q21. Furthermore, organic sales, which removes the effects of FX and M&A, climbed by 2.3%. For FY24, organic revenue grew by 3.2%, landing near the lower bound of KMB's +3-4% forecast.
- Since the previous quarter, KMB changed its reporting structure. The company no longer divides its performance into three segments based on categories, e.g., Personal Care, Consumer Tissue, and K-C Professional, breaking down each by region. Instead, KMB's transformative multi-year Powering Care strategy rewired its organization into three main segments: North America (NA), International Personal Care (IPC), and International Family Care & Professional (IFP).
- In Q4, every segment posted positive volume growth yr/yr, culminating in a 1.5% improvement overall, KMB's highest quarterly volume growth all year. NA led the way, delivering 1.9% volume growth supported by improving trends, especially in diapers, adult, and facial tissue categories. KMB added that seven out of the eight categories in North America enjoyed volume growth. China was a significant highlight outside of NA, boasting double-digit volume growth in IPC during Q4. Meanwhile, other categories gained in the U.K., Australia, South Korea, and Indonesia.
- Looking ahead, KMB expects FY25 organic sales growth to outpace the weighted average growth in the categories and markets it competes with, which are growing at around +2%. Management mentioned that it observed some lower frequency across a few markets and some slowdown in North American professional consumption in Q4, which could create some near-term headwinds. However, management noted it provided a reasonable growth target given economic volatility. KMB also expects adjusted EPS to grow at a mid-to-high single-digit rate on a constant currency basis.
Overall it was a solid quarter from KMB, helped by the relative inelasticity of household durables, as consumers must purchase these regardless of economic conditions. However, that does not shield KMB from other name-brand competitors or private-label alternatives. For instance, KMB exited its private label diaper business in the U.S., contributing to a 240 bp hit to the company's FY25 reported net sales forecast, highlighting private labels' relative significance on annual growth. Still, as Proctor & Gamble (PG) signaled last week, the end consumer is stabilizing, supporting steady growth over the near term.
Sanmina trades flat as top line returns to growth; customer inventory absorption improves (SANM)
Sanmina (SANM) is flat following its Q1 (Dec) earnings report last night. This EMS provider beat analyst expectations on EPS, its largest EPS beat in the past four quarters. Revenues rose 7.0% yr/yr to $2.01 bln, which was a bit better than expected. The Q2 (Mar) EPS and revenue guidance ranges were both within analyst expectations. However, the mid-points of both EPS and revs were a bit below expectations, so maybe some disappointment there.
- Revenue, gross margin, operating margin and adjusted either met or exceeded its outlook. IMS segment revenue came in at $1.62 bln, up 7.8% yr/yr, driven by growth in the majority of end markets, but primarily in the communications networks and cloud infrastructure end markets. CPS segment revenue came in at $416 mln, up 5.4% yr/yr, driven by higher demand in most end markets. While Sanmina said it was pleased with the IMS and CPS businesses, there is still room to improve.
- Industrial & energy, medical, defense, aerospace and automotive was 63% of revenue, it came at $1.269 bln, up 1%. Within Industrial & Energy, Sanmina says it has a strong customer base and it sees new projects in the pipeline. Medical also has a solid and well-diversified customer base. Defense & aerospace is seeing strong market opportunities with new programs to drive growth. Automotive & Transportation continues to show solid demand.
- Communication networks and cloud infrastructure was 37% of revenue, or $737 mln, with growth of 19%. The Communications segment is improving because Sanmina is beginning to see customer inventory absorption improve. Sanmina expects this market to continue to move in the right direction, driven by high performance cloud, IP routing switches, and some optical packaging systems. Also, Sanmina is starting to see pickup from some existing customers as they are working their inventory down. Sanmina would like to see inventory worked down even more quickly, but at least it's going in the right direction.
- EMS industry margins are notoriously thin, so we watch this metric closely. Adjusted operating margin improved to 5.6% from 5.3% in SepQ and 5.5% a year ago. Sanmina is focused on margin expansion, including a focus on adding new customers with higher margin opportunities. Short term, Sanmina expects operating margin will be stable in the 5-6% area, but long term, sees that at 6+%. For Q2 (Mar), Sanmina has guided to the 5.3-5.7% range.
Sanmina had a bit of a rough FY24, but the good news is that yr/yr revenue growth returned in Q1, following five consecutive yr/yr declines. That was partly from a communications vertical that was digesting inventory. The good news is that this digestion seems to be on the tail end of this cycle. It is not over, but customers' inventories continue to come down. Sanmina is also starting to see new programs ramp up.
On a final note, Sanmina increased its share buyback authorization by $300 mln, which is a good amount for a $4.2 bln market cap company, roughly 7% of shares outstanding. Sanmina was pretty candid on the call, saying that it believes its share price is undervalued in the market and, as such, share repurchases remain an attractive capital allocation option. Sanmina says it has one of the strongest balance sheets in the industry with no net debt and a low gross leverage ratio, so it has money to spend on buybacks.
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