| | | Market Snapshot
| Dow | 44422.97 | -122.75 | (-0.28%) | | Nasdaq | 19473.86 | -235.49 | (-1.19%) | | SP 500 | 5994.57 | -45.96 | (-0.76%) | | 10-yr Note | 0/32 | 4.54 |
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| | NYSE | Adv 853 | Dec 1853 | Vol 1.1 bln | | Nasdaq | Adv 1333 | Dec 3061 | Vol 8.3 bln |
Industry Watch
| Strong: Health Care, Consumer Staples, Energy, Communication Services, Utilities |
| | Weak: Information Technology, Consumer Discretionary, Industrials |
Moving the Market
-- Responding to news about the US imposing a 25% tariff on imported goods from Canada and Mexico (only 10% for Canadian energy) and a 10% tariff on imported goods from China
--Subsequent news that tariff for Mexico will be paused for a month
-- Broad selling interest
-- Waiting on huge batch of earnings news this week
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Closing Summary
03-Feb-25 16:30 ET
Dow -122.75 at 44422.97, Nasdaq -235.49 at 19473.86, S&P -45.96 at 5994.57
[BRIEFING.COM] The week started with some turbulence in the stock market. The S&P 500 and Nasdaq Composite traded down as much as 1.9% and 2.5%, respectively, and the Dow Jones Industrial Average was more than 650 points lower at its worst level.
This price action was in response to the weekend news that the US imposed a 25% tariff on imported goods from Canada and Mexico (only 10% for Canadian energy) and a 10% tariff on imported goods from China beginning at midnight.
Subsequents news emerged that Mexico's President Claudia Sheinbaum said she had a "good call" with President Trump and he agreed to "pause tariffs for one month." President Trump confirmed the update.
Stocks moved off their lows in response, but never fully recovered due to ongoing fears about tariffs impacting growth and pressuring inflation higher. The lower finish was also influenced by increased selling in heavily-weighted sectors like information technology (-1.8%), consumer discretionary (-1.4%), and financials (-0.4%).
There were some pockets of buying interest, though, leading the consumer staples (+0.7%), utilities (+0.5%), and energy (+0.4%) sectors to close higher.
Treasuries settled mixed in response. The 10-yr yield settled three basis points lower at 4.54% and the 2-yr yield settled three basis points higher at 4.27%.
- Dow Jones Industrial Average: +4.4% YTD
- S&P Midcap 400: +2.5% YTD
- Russell 2000: +1.3% YTD
- S&P 500: +1.9% YTD
- Nasdaq Composite: +0.4% YTD
Reviewing today's economic data:
- January S&P Global US Manufacturing PMI - Final 51.2; Prior 50.1
- January ISM Manufacturing Index 50.9% (Briefing.com consensus 49.1%); Prior was revised to 49.2% from 49.3%
- The key takeaway from the report is that manufacturing sector activity overall moved into expansion territory for the first time after 26 straight months of contraction, underscoring an improved demand backdrop seen in the pickup in the new orders and employment indexes.
- December Construction Spending 0.5% (Briefing.com consensus 0.2%); Prior was revised to 0.2% from 0.0%
- The key takeaway from the report is that new single-family construction activity picked up despite rising interest rates.
Looking ahead to Tuesday, market participants receive the following economic data:
- 10:00 ET: December job openings (prior 8.098 mln) and December Factory Orders (Briefing.com consensus -0.3%; prior -0.4%)
Treasuries settle mixed after volatile session
03-Feb-25 15:30 ET
Dow -50.41 at 44495.31, Nasdaq -161.91 at 19547.44, S&P -31.32 at 6009.21
[BRIEFING.COM] The Dow Jones Industrial Average had been trading higher, but returned to negative territory with the Nasdaq Composite and S&P 500.
Treasuries settled mixed after a turbulent session amid tariff-related headlines. The 10-yr yield settled three basis points lower at 4.54% and the 2-yr yield settled three basis points higher at 4.27%.
Looking ahead to Tuesday, market participants receive the following economic data:
- 10:00 ET: December job openings (prior 8.098 mln) and December Factory Orders (Briefing.com consensus -0.3%; prior -0.4%)
GOOG trades down in front of earnings
03-Feb-25 15:05 ET
Dow +28.59 at 44574.31, Nasdaq -137.56 at 19571.79, S&P -21.07 at 6019.46
[BRIEFING.COM] The major indices moved mostly sideways in recent trading.
Alphabet (GOOG 203.80, -1.79, -0.9%) trades down in front of its earnings report tomorrow afternoon. This price action hasn't impacted the communication services (+0.4%) sector too much due to the gain in Meta Platforms (META 701.32, +12.05, +1.8%).
Other mega caps are mostly lower. The Vanguard Mega Cap Growth ETF (MGK) trades 0.6% lower.
DJIA turns positive
03-Feb-25 14:30 ET
Dow +7.69 at 44553.41, Nasdaq -144.23 at 19565.12, S&P -23.74 at 6016.79
[BRIEFING.COM] The Dow Jones Industrial Average moved above its prior close over the last half hour.
Treasuries reacted to the aforementioned comments from President Trump. The 10-yr yield is at 4.56% and the 2-yr yield is at 4.27%.
More stocks are also trading higher, leading six of the 11 S&P 500 sectors to trade up. The consumer staples (+0.8%), health care (+0.8%), and utilities (+0.8%) sectors lead the pack.
Oh, Canada, what say ye?
03-Feb-25 13:55 ET
Dow -39.34 at 44506.38, Nasdaq -184.92 at 19524.43, S&P -31.85 at 6008.68
[BRIEFING.COM] The market continues its sideways drift following the recovery effort off this morning's lows. The S&P 500 is at the top of today's trading range. Market participants may now just be waiting to hear what comes out of the 3:00 p.m. ET phone call between President Trump and Canadian Prime Minister Trudeau.
There's no telling if they will get an answer before the close.
Following the close of today's trading, Clorox (CLX 159.95, +1.27, +0.8%), NXP Semiconductors (NXPI 205.62, -2.93, -1.4%), and Palantir Technologies (PLTR 83.50, +1.101, +1.2%) will be the featured earnings reporters.
Currently, the CBOE Volatility Index, which topped 20.00 earlier, is up 11.3% to 18.28.
Tyson Foods raises its FY25 guidance; comfortable overcoming potential tariff impacts (TSN)
An impeccable Q1 (Dec) performance supports solid gains for Tyson Foods (TSN +1%) today, heading to its best levels of the year. Shares of the meat processor, separating its segments into Chicken, Beef, Pork, Prepared Foods, and International, had given up roughly 12% from highs reached after its Q4 (Sep) report in mid-November as investors expressed concern over stagnating demand, stubborn cost inflation, and potential incoming tariffs.
While these concerns still linger, TSN alleviated some of the worries today by toppling earnings and sales estimates in Q1 while also raising its FY25 (Sep) revenue and profitability guidance, showcasing benefits from past operational changes and improvements within the consumer landscape. The company now expects flat to +1% revenue growth yr/yr in FY25 from down 1% to flat and adjusted operating income of $1.9-2.3 bln, up from $1.8-2.2 bln.
- In Q1, TSN recorded its fifth consecutive quarter of double-digit earnings upside, posting adjusted EPS of $1.14, a 65% spike yr/yr. In 2024, TSN conducted cost-saving moves, implementing multiple layoffs and closing several facilities. In Q1, TSN made further progress against its initiatives, exceeding its yield improvement goals, reducing the impact of distressed inventory, and lowering overhead costs. These actions flowed to TSN's bottom line, supporting its 170 bp yr/yr improvement in adjusted operating margins in the quarter.
- In Beef, TSN's largest segment by sales, revenue ticked 6% higher yr/yr to $5.34 bln, supported by a robust 5.6% volume bump and a less impactful 0.6% increase in average price. The current cattle cycle has acted as a persistent headwind, as tight supply has translated to higher prices. While performance in Q1 was encouraging, TSN left its profitability forecast unchanged for the year, predicting an adjusted operating loss of $0.2-0.4 bln, reflecting volatility within the beef industry.
- In Chicken, TSN's second-largest segment, revenue was essentially flat yr/yr at $4.07 bln, with volume growth of 1.5% partially offset by a 0.7% drop in price. However, adjusted operating income of $351 mln was TSN's best in over eight years, illuminating the company's improvements in plant operations alongside help from lower grain costs. These positives underpinned TSN's slightly raised FY25 adjusted operating income outlook of $1.0-1.3 bln from $1.0-1.2 bln.
- Other segments performed decently. Pork aligned with management's expectations, growing revenue by 6.6% yr/yr, supported entirely by a 7.0% jump in price. TSN reiterated its adjusted operation income guidance of $0.1-0.2 bln for the year in Pork. Meanwhile, Prepared Foods continued to endure lower volumes, pushing sales 2.8% lower yr/yr. However, TSN noted that the segment remains on track to reach its previously outlined FY25 adjusted operating income target of $0.9-1.1 bln.
- On tariffs, TSN felt comfortable with its capacity to manage any impacts, incorporating these into its raised outlook for the year. Pork is the main segment that would be most affected by tariffs.
Bottom line, TSN's Q1 report was encouraging, illuminating its ability to navigate sticky economic headwinds. While uncertainties will persist this year, especially if inflation continues to creep higher, TSN is making the right moves to position it for growth over the long run.
Cleveland-Cliffs ended a tough 2024 on a sour note, but steel producer expecting a rebound (CLF)
In the words of Cleveland Cliffs (CLF) CEO Lourenco Goncalves, 2024 was the worst year for domestic steel demand since 2010, not including the COVID-impacted year of 2020, which is reflected in both the company's financials and its stock price, which is down by about 53% on a yr/yr basis. Those struggles were on display again this morning when the company issued downside Q4 revenue guidance of $4.30 bln, equating to a yr/yr drop of nearly 16%, marking the tenth time out of the past eleven quarters that it has experienced a revenue decline.
A primary culprit has been a sluggish auto industry that's been hamstrung by persistently high interest rates and a cash-strapped consumer that's hesitant to add another bill to the monthly budget. Across the industry, eroding steel prices due to soft demand and elevated manufacturing inventories have pressured earnings, as illustrated by U.S. Steel's (X) slightly worse-than-expected Q4 loss of $(0.13) from last Thursday.
However, the tide may be about to turn for CLF and competitors such as U.S. Steel, Nucor (NUE), and Steel Dynamics (STLD). When STLD reported Q4 results on January 22, it stated that steel pricing is stabilizing, and that customer optimism is on the rise -- a sentiment that CLF echoed today. Specifically, Mr. Goncalves stated that CLF has already seen improvements this year in the automotive and non-automotive order book, and that he's confident that President Trump's agenda will have an outsized benefit on the company.
- In particular, CLF and its competitors believe that the Trump administration's proposed tariffs on China, Mexico, and Canada will drive steel prices higher as steel imports into the U.S. fall. It's worth noting that during President Trump's first term, steel prices did initially rocket higher by about 100% to $1,000 per short ton in August 2018 but ultimately rolled over later that year and completed a roundtrip, ending 2019 back at $500 per ton. The main issue was that the high level of demand that was created initially due to manufacturers stockpiling steel to get ahead of price increases fizzled out and began to unwind.
- Looking beyond tariffs, CLF is also optimistic that its $2.5 bln acquisition of Stelco -- a Canadian producer of flat-rolled steel -- will pay meaningful dividends this year. The acquisition, which was completed this past November, expands CLF's presence in Canada and doubles its exposure to the flat-rolled spot market.
- On the topic of acquisitions, Reuters reported on January 14 that CLF is eyeing an acquisition of U.S. Steel after the Biden Administration blocked Nippon Steel's bid to purchase U.S. Steel for $55/share. This wouldn't be the first time that U.S. Steel has landed on CLF's radar. In August 2023, CLF attempted to acquire the company at $54/share, but that deal was scrapped over concerns that regulators would shut it down due to competitive concerns.
The main takeaway is that 2025 is shaping up to be a stronger year for CLF after enduring a rough stretch over the past few years, but uncertainties do remain. For instance, if end market demand doesn't significantly improve, due to high interest rates or other macro headwinds, then any potential benefit from tariffs could be erased.
Tariffs are weighing on market, sparking inflation fears and reducing likelihood of rate cuts
The big news today that is weighing on the markets is that President Trump is going ahead with his plan to impose a 25% tariff on imports from Canada and Mexico and a 10% tariff on imports from China. There was a carve out from the administration that energy resources from Canada will have a lower 10% tariff.
- President Trump says he is taking these actions to hold Mexico, Canada, and China accountable in terms of halting illegal immigration and stopping fentanyl and other drugs from flowing into the US, which he says have created a national emergency, including a public health crisis. As for China, Trump is hoping these moves will force Chinese officials to stem the flow of precursor chemicals to criminal cartels and shut down money laundering by transnational criminal organizations.
- The stock market is heading lower as investors rightly fear the impact these moves will have on the US and world economy. Consumers all around the world have been dealing with inflation in recent years and the fear is that these moves will make inflation worse. Specifically, importers are likely to pass on these higher costs to consumers. And the Fed is watching. They will factor the impact of tariffs into rate decisions in the coming year and they will be more likely to hold off on rate cuts, which the stock market does not like.
- These moves will affect many industries. The US is a big importer of lumber from Canada, so this could increase prices for new homes. It is not just new homes, prices for containerboard are likely to rise. This is used in all types of food containers, so consumers may feel the pinch there. Aluminum is another big industry likely to be impacted, which may affect everything from beverage/food cans to appliances to aerospace suppliers. Mexico is a big supplier of auto parts, appliances, avocados, medical instruments, fruits/vegetables, beer etc. Canada and Mexico are also major suppliers of plastics, which will impact all types of industries.
- Some industries will benefit. Steel producers, in particular Nucor (NUE) have been complaining about cheap imports from China in recent quarters. Even Cleveland-Cliffs (CLF), which guided Q4 revs below consensus this morning, praised the decision on tariffs. The problem is that while tariffs will help a few industries like steel producers, there are many more steel-consuming industries that will pay higher prices and pass that on to consumers.
Overall, it is difficult to say how long the tariffs will be in place. President Trump is known for changing positions pretty rapidly. Or if the economic impact and stock market reaction gets too big, he could get some concession from these countries then claim a win and reverse course, similar to what happened with Colombia last week. The market is lower on the news, but stocks probably would have reacted even more harshly if there was certainty they would last a long time. We suspect investors are thinking these may be more of a negotiating tactic and possibly shorter term in nature. Note: Soon after we finished writing, Trump announced a one month delay with Mexico.
Deckers Outdoor sells off on mild FY25 revenue guidance triggered by inventory issues (DECK)
Deckers Outdoor (DECK -17%) is getting trampled today despite delivering a decent beat-and-raise in Q3 (Dec). The shoemaker, known for its brands UGG, HOKA, and Teva, had been on a monster run leading into Q3 results last night. Since gapping higher on a beat-and-raise Q2 (Sep) report in late October, the stock tacked on an additional +30%, reaching all-time highs yesterday. This level of appreciation put Q3 numbers under a microscope.
What is disappointing investors today? Guidance is at the forefront of today's selling pressure. While DECK hiked its FY25 (Mar) outlook, it was slightly milder than analysts anticipated, mainly on the top line. DECK projected FY25 revs of $4.9 bln, equivalent to increasing its prior forecast by the size of its top-line beat in Q3, meaning that the raise does not incorporate additional upside in Q4.
DECK has a history of issuing conservative guidance. However, this time, investors are not quickly shrugging it off. The problem stems from inventory, primarily with the UGG banner. The brand experienced a robust December selling period yr/yr, aided by DECK's increased and earlier inventory position -- its strategy to avoid the pitfalls of last year when it sold out of key styles that were later fulfilled in Q4. However, unlike last year, when this acted as a tailwind to Q4, it is having the reverse impact this year, benefiting Q3 at the expense of Q4. While this issue does not paint a deteriorating demand picture, it is enough to trigger selling pressure today, given DECK's valuation and subsequent lofty expectations.
That said, there were still plenty of highlights from Q3 showcasing a steady appetite for DECK's brands, especially when stacked against rivals like NIKE (NKE), whose recent Q3 (Feb) guidance, which included another quarter of yr/yr revenue compression, illuminated the challenges associated with mounting a comeback.
- In Q3, DECK posted EPS of $3.00, delivering gross margin expansion of 160 bps yr/yr to 60.3%. However, DECK cautioned that this level of margin expansion is not the norm. The company noted that high levels of full-price selling combined with low levels of wholesale closeouts are abnormal and should not be counted on going forward.
- Revenue grew 17.1% yr/yr to $1.83 bln, lifted by solid gains in UGG and HOKA, which increased net sales by 16.1% and 23.7%, respectively. Geographically, international net sales growth continued to outpace domestic growth, climbing by 28.5% yr/yr to $657.9 mln versus an 11.5% improvement to $1.169 bln. DTC and wholesale sales growth were similar, rising by 17.9% and 16.2%, respectively.
- Looking ahead to FY26, DECK provided a few color comments, noting that it has an exciting pipeline of upcoming products. Part of its strategies for next year involves expanding its DTC business through consumer acquisition and retention and bolstering its international presence by implementing its domestic playbook.
Bottom line, while DECK's Q3 report underscored sustained demand, its inventory-related headwinds eroded Q4 revenue prospects, spurring substantial selling pressure today following a massive rally leading into Q3 results.
Intel beats muted Q4 expectations, but underlying story remains the same (INTC)
In its first earnings report since beleaguered chip maker Intel (INTC) ousted its former CEO Pat Gelsinger, the company surpassed analysts' low 4Q24 expectations, but one doesn't need to look too far under the surface to see that its struggles remain. With the exception of its smaller Network & Edge unit, which generated yr/yr growth of 10%, each of INTC's segments experienced revenue declines, indicating that the company's competitive position hasn't improved as it looks to close the technology gap against rivals like Advanced Micro Devices (AMD) and NVIDIA (NVDA).
- Even INTC's revenue beat comes with a major caveat. During the earnings call, co-CEO David Zinsner acknowledged that a portion of Q4 revenue in Client Computing Group (CCG) was driven by customers buying ahead of the likely implementation of tariffs. Due to this pull forward in demand, along with the ongoing rebalancing of PC inventory and competitive pressures, INTC issued downside EPS and revenue guidance for Q1.
- Michelle Johnston Holthaus, the other co-CEO, didn't sugar coat the situation during the earnings call, stating that "there are no quick fixes" and admitting that she is not pleased with where INTC is today in regard to the AI data center market. The remarks did come as a breath of fresh air as she painted a realistic picture of where INTC currently stands and detailed what it needs to do to get out of this rut.
- Strengthening the product roadmap and winning back customers is easier said than done, but that is the key for INTC's turnaround. While the company's processors in the PC and laptop markets (i7, Core i9) are at least generally on par with products from AMD and Qualcomm (QCOM), the same can't be said on the data center side. In Q4, Data Center and AI (DCAI) revenue fell by 3% yr/yr to $3.4 bln, after the unit achieved growth of 9% last quarter. Ms. Holthaus stated that 2025 is all about improving the competitive position of Xeon, which is sold into the traditional data center market.
- Furthermore, in 1H25, the company plans to launch Clearwater Forest, its first 18A server product. As a reminder, 18A is INTC's new process technology that will help launch new CPUs for both PCs and data centers. The news isn't as encouraging on the AI data center side at this point with Ms. Holthaus commenting that INTC isn't participating in the cloud-based AI data center market in a meaningful way yet.
- Turning to CCG, revenue fell by 9% yr/yr to $8.0 bln following last quarter's 7% dip. On the positive side, the company's PC customers digested inventory at a much slower rate in Q4 compared to Q3. Looking ahead, INTC is poised to launch Panther Lake in 2H25, its next generation desktop processor that will utilize the 18A process node. In 2026, the company expects Panther Lake to achieve meaningful volumes, providing a significant boost to CCG.
- For the upstart Foundry segment, the story remains mostly unchanged as the unit continues to bleed red ink to the tune of $13 bln in losses in 2024. INTC is still the largest customer of the Foundry segment and that will likely remain the case for the foreseeable future. Still, INTC believes Foundry will eventually transform into a huge opportunity, bolstered by the rapid growth of AI and the need for another manufacturing source outside of Taiwan Semiconductor (TSM).
The main takeaway is that Q4 was another rough quarter for INTC, and the next few quarters may not show much improvement either given the magnitude of the challenges facing the company. If there is a silver lining, it's that INTC does have some key products set to launch this year, and a new CEO may help to refocus and reenergize the company.
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