Market Snapshot
| Dow | 44554.96 | +131.99 | (0.30%) | | Nasdaq | 19735.92 | +262.06 | (1.35%) | | SP 500 | 6037.88 | +43.31 | (0.72%) | | 10-yr Note | +3/32 | 4.531 |
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| | NYSE | Adv 1890 | Dec 790 | Vol 1.0 bln | | Nasdaq | Adv 2963 | Dec 1413 | Vol 6.5 bln |
Industry Watch
| Strong: Energy, Information Technology, Communication Services, Consumer Discretionary, Materials, Industrials |
| | Weak: Utilities, Health Care, Consumer Staples, Financials |
Moving the Market
-- Reacting to tariffs on China and retaliation
-- Calm price action in Treasuries
-- Gains in some mega caps boosting index performance
-- Digesting slate of earnings news
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Closing Summary
04-Feb-25 16:30 ET
Dow +131.99 at 44554.96, Nasdaq +262.06 at 19735.92, S&P +43.31 at 6037.88
[BRIEFING.COM] Today's market showed a positive bias, with investor sentiment buoyed by several key developments related to tariffs and their potential impact on inflation and corporate earnings growth. Specifically, Canada was granted a 30-day reprieve from tariff actions, while China’s latest retaliatory measures appear more symbolic than substantial
Market expectations were high that President Trump would engage in talks with Chinese President Xi Jinping today; however, those discussions did not materialize.
The S&P 500 logged a 0.7% gain and the Nasdaq Composite jumped 1.4%.
Significant contributions to the market's performance were from large-cap stocks, with Alphabet (GOOG 207.71, +5.07, +2.5%) standing out, rising 2.5% to a fresh 52-week high before reporting earnings. Other stocks with notable gains included Palantir Technologies (PLTR 103.83, +20.09, +24.0%), which surged 24.0% following strong earnings results, and Spotify (SPOT 621.77, +72.69, +13.2%), up 13.2% after posting better-than-expected numbers.
On the downside, some earnings reports weighed on stock prices, with Dow component Merck (MRK 90.74, -9.05, -9.1%) dropping 9.1%, Estee Lauder (EL 69.47, -13.30, -16.1%) falling 16.1%, and PepsiCo (PEP 143.49, -6.78, -4.5%) retreating 4.5%, following disappointing results in their latest earnings reports.
The overall upside bias in stocks was also helped by the decline in rates following the December JOLTS - Jobs Openings Report, which showed a stark drop in openings to 7.600 million versus an upwardly revised 8.156 million (from 8.098 million) in November.
The 2-yr yield, at 4.24% before 10:00 ET, dropped five basis points from yesterday to 4.22%.
The decline in job openings was interpreted as an indication of a softening labor market, with employers posting fewer job listings than in previous months. This shift did not significantly alter market expectations regarding future rate cuts. Nonetheless, it does align with the prevailing sentiment that the Federal Reserve’s next policy move is likely to be another rate reduction.
- Dow Jones Industrial Average: +4.7% YTD
- S&P Midcap 400: +3.1% YTD
- Russell 2000: +2.7% YTD
- S&P 500: +2.7% YTD
- Nasdaq Composite: +1.8% YTD
Reviewing today's economic data:
- December Factory Orders -0.9% (Briefing.com consensus -0.3%); Prior was revised to -0.8% from -0.4%
- The key takeaway from the report is that the weakness in factory orders was concentrated in the volatile transportation equipment space; otherwise, there was a modest pickup in order activity.
- December JOLTS - Job Openings 7.600 mln; Prior was revised to 8.156 mln from 8.098 mln
Looking ahead to Wednesday, market participants receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -2.0%)
- 8:15 ET: January ADP Employment Change (Briefing.com consensus 155,000; prior 122,000)
- 8:30 ET: December Trade Balance (Briefing.com consensus -$98.0 bln; prior -$78.2 bln)
- 9:45 ET: Final January S&P Global U.S. Services PMI (prior 52.8)
- 10:00 ET: January ISM Services (Briefing.com consensus 53.9%; prior 54.1%)
- 10:30 ET: Weekly crude oil inventories (prior +3.46 mln)
Treasuries settle with gains
04-Feb-25 15:30 ET
Dow +102.56 at 44525.53, Nasdaq +221.06 at 19694.92, S&P +36.19 at 6030.76
[BRIEFING.COM] The major indices trade off session highs heading into the close.
President Trump told reporters he will speak with Chinese President Xi at the appropriate time and there is no rush, according to CNBC.
The 10-yr yield dropped three basis points to 4.51% and the 2-yr yield dropped five basis points to 4.22%.
Looking ahead to Wednesday, market participants receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -2.0%)
- 8:15 ET: January ADP Employment Change (Briefing.com consensus 155,000; prior 122,000)
- 8:30 ET: December Trade Balance (Briefing.com consensus -$98.0 bln; prior -$78.2 bln)
- 9:45 ET: Final January S&P Global U.S. Services PMI (prior 52.8)
- 10:00 ET: January ISM Services (Briefing.com consensus 53.9%; prior 54.1%)
- 10:30 ET: Weekly crude oil inventories (prior +3.46 mln)
GOOG outperforms ahead of earnings
04-Feb-25 15:00 ET
Dow +123.21 at 44546.18, Nasdaq +218.50 at 19692.36, S&P +37.71 at 6032.28
[BRIEFING.COM] The S&P 500 trades about 38 points higher with one hour left in the session.
Alphabet (GOOG 206.82, +4.20, +2.1%) trades up ahead of its earnings report this afternoon. This price action has boosted the S&P 500 communication services sector (+1.3%), along with a gain in Meta Platforms (META 702.61, +8.15, +1.2%).
Advanced Micro Devices (AMD 118.59, +4.32, +3.8%) also outperforms in front of its earnings report this afternoon, along with other semiconductor-related names.
Discretionary stocks lead
04-Feb-25 14:30 ET
Dow +144.56 at 44567.53, Nasdaq +240.78 at 19714.64, S&P +42.55 at 6037.12
[BRIEFING.COM] The Dow Jones Industrial Average moved higher over the last half hour, trading about 150 points above its prior close now. The S&P 500 trades about 40 points higher.
Discretionary-related names have outperformed thus far, leading the consumer discretionary sector to trade 1.2% higher.
A look inside the sector shows Ford (F 10.13, +0.23, +2.4%), Domino's Pizza (DPZ 465.71, +9.86, +2.2%), and Starbucks (SBUX 110.64, +2.49, +2.3%) leading the components trading higher.
Nasdaq and Russell 2000 in command positions
04-Feb-25 14:00 ET
Dow +65.45 at 44488.42, Nasdaq +225.24 at 19699.10, S&P +35.52 at 6030.09
[BRIEFING.COM] Buyers continue to control the tape, which has seen the Nasdaq Composite (+1.1%) and Russell 2000 (+1.0%) in command positions since the open, bolstered in general by tariff relief and growth stock momentum following the Palantir Technologies (PLTR 102.75, +19.01, +22.7%) earnings report.
They have also been helped by the decline in rates following the December JOLTS - Jobs Openings Report, which showed a stark drop in openings to 7.600 million versus an upwardly revised 8.156 million (from 8.098 million) in November.
The 2-yr note yield, at 4.24% just before the 10:00 a.m. ET release, is at 4.21% now, down six basis points, and the 10-yr note yield, at 4.56% just before the release, is at 4.52% now, down three basis points from yesterday's settlement.
The drop in job openings was regarded as a sign of a loosening labor market (i.e., employers posting fewer jobs to fill than before). That understanding didn't move the needle all that much in terms of rate cut expectations. Importantly, though, it aligned with the market's thinking that the next policy move, when it comes, will be another rate cut.
According to the CME Fed Watch Tool, there is a 64.4% probability of a 25-basis points rate cut at the June FOMC meeting versus 59.3% a day ago.
PepsiCo's Q4 report falls flat as weakening volumes in Frito-Lay North America spark selling (PEP)
PepsiCo's (PEP -4%) ailing stock price continues today after the consumer packaged goods giant, owning the Pepsi, Frito-Lay, and Quaker banners, delivered declining volumes across North America in Q4. While consolidated volumes flipped positive in the quarter, expanding by 1% across PEP's food and beverage lines, trends stagnated or deteriorated in North America, overshadowing this positive development.
In PepsiCo Beverages North America, volumes fell by 3% for the third straight quarter, not seeing positive growth since 3Q22. Meanwhile, in Frito-Lay North America, volumes weakened, sliding by 3% in Q4 versus a 1.5% drop last quarter. Similar to beverages, Frito-Lay has not posted positive volume growth since 2Q23.
Even though shares of PEP have been stuck in an extended correction leading into Q4 results, depreciating by 13% since last quarter, investors were hungry for a more encouraging report today. As a result, PEP is heading toward four-year lows reached last month.
- What seems to be the problem for PEP? Frito-Lay is generating the bulk of today's downbeat sentiment. Last quarter, PEP made investments geared toward providing more consumer value and improving in-store availability, actions that helped volume trends improve sequentially, as volumes improved to (1.5)% from (4.0%) in Q2. However, PEP could not sustain this momentum in Q4, a development that surprised the market today.
- CEO Ramon Laguarta commented that the investments have spurred some encouraging trends. For instance, the snack food category is starting to grow, albeit gradually. Additionally, PEP is addressing a lucrative away-from-home opportunity, bolstering its presence in this channel. PEP is also rethinking participating in several price partitions where it currently has no presence, such as the sub-$1 and sub-$2 markets. Furthermore, PEP is ensuring it has enough variety, such as multi-packs or single-serve, to appeal to households of different incomes.
- While PEP feels good about where it is surrounding the Frito-Lay banner, management expressed caution, noting that global markets remain volatile. Unemployment remains low, and inflation is easing. However, PEP acknowledged elevated geopolitical tensions that could impact its operations and the end consumer. This cautious optimism is reflected in its guidance, projecting FY25 organic revenue growth in the low-single-digit percentages yr/yr and core constant currency EPS growth in the mid-single-digit percentages.
After a noticeable slowdown in Frito-Lay in 2024, PEP is committed to stabilizing the category in 2025. Meanwhile, in beverages in North America, PEP is focused on expanding margins while also driving acceleration on its top line through innovation with "zero sugar" options, functional hydration, such as new Gatorade offerings, and teas and coffees. Given PEP's international presence and brand loyalty, demand is relatively inelastic, giving the company a solid foundation from which it can launch its initiatives. As such, PEP is worth keeping on the radar as a turnaround play. The company also raised its dividend today, giving it a 4.0% annual yield, which is a nice bonus.
Spotify's improving profitability is music to investors' ears (SPOT)
Spotify's (SPOT) improving profitability and healthy subscriber growth is music to investors' ears. While the company missed 4Q24 earnings expectations, its EPS swung from €(0.36) in the year-earlier period to €1.76 this quarter, driven by last year's price increases and an accompanying increase in ARPU, as well as a 16% drop in operating expense. Those price increases aren't driving users away, either, as illustrated by the 11% jump in Premium Subscribers to 263 mln, beating SPOT's guidance by approximately 3.0 mln users.
Moving forward, the company will consider implementing additional price hikes, although no price increases appear to be on the immediate horizon. Still, the possibility of SPOT pulling that earnings lever down the road, combined with healthy user growth and engagement trends, has the market feeling bullish about the company's ability to generate even stronger profits in the future.
- In 2023, SPOT changed course, prioritizing profitability instead of growth, and that decision has been an absolute gamechanger for the company and its shareholders. Including today's sizable gains, the stock has soared by 220% since the end of 2023 and is currently trading at all-time highs. A major component of that strategy has been to raise prices, but cutting back on personnel and marketing expenses, while launching new products such as an audiobooks-only subscription, are also parts of the equation.
- In Q4, gross margin expanded by 555 bps yr/yr to 32.2%, beating SPOT's guidance, fueled by gains in both the premium and ad-supported businesses. The company is expecting the margin expansion to cool off, especially as it anniversaries the price hikes from July 2024. For Q1, SPOT is forecasting gross margin of 31.5%.
- SPOT may have deemphasized user growth, but it's MAUs are still growing at a healthy clip, up 12% yr/yr to 675.0 mln. In fact, the 35.0 mln subscriber addition marked the largest Q4 MAU increase in SPOT's history, bolstered by strong growth in Latin America and a successful "Wrapped" marketing campaign. Wrapped, which is offered at the end of November through early December, allows users to view a compilation of data regarding their activity on the platform, while enabling them to share a presentation of that data on social media.
Looking ahead, SPOT is forecasting Q1 revenue of €4.2 bln, which is slightly ahead of expectations, MAUs of 678 mln, and Premium Subscribers of 265 mln. CEO Daniel Ek commented that the company plans to double-down on music, buoyed by its investments in AI and the strong cash flow that its generating. With momentum on its side, 2025 is shaping up to be another strong year for SPOT.
Palantir Technologies surges to record highs on another quarter of impressive growth in Q4 (PLTR)
Like Groundhog Day, Palantir Technologies (PLTR +25%) surges to record highs once again following an impressive quarterly report, surpassing earnings and revenue estimates in Q4 and projecting sustained upward momentum in Q1 and FY25. Shares of the AI software developer, whose roots begin with the CIA, were already up +400% over the past year leading into Q4 numbers, pushing its forward earnings and sales multiples to sky-high levels of 158x and 50x, respectively. However, PLTR continues to release outstanding quarterly reports, showcasing the clear edge its AI software has over the field.
- PLTR has been enjoying a powerful AI-induced tailwind for several consecutive quarters. The company's bottom-line upside in Q4 marks its third straight beat, delivering adjusted EPS of $0.14, its best quarter of profitability since going public in late 2020. Similarly, revenue crushed consensus for the third quarter running, leaping by 36% yr/yr to $827.52 mln, a decent acceleration from the +30%, +27%, and +21% growth over the previous three quarters.
- U.S. commercial revenue has been underpinning PLTR's accelerating growth. In Q4, this business spiked by 64% yr/yr to $214 mln, a 10 pt jump from last quarter's growth. The company's AIP offering (AI platform) continues to fuel new customer acquisition, driving a nearly 400% jump in U.S. commercial customers compared to three years ago. Examples of why AIP is attractive to U.S. companies include helping telecoms decommission old network technologies and equipment and automatically load-balancing prescription fulfilment for pharmacies.
- One of PLTR's goals for enterprises is to help build a self-driving company, allowing users to go from performing workflows to supervising AI agents. The company has begun working toward this goal, assisting a multinational bank to automate core back-office processes and working with a construction firm to automate risk identification across thousands of pages of technical documents.
- The foundational U.S. government business maintained its strength in Q4, expanding revenue by 45% yr/yr to $343 mln. On the flip side, PLTR's international commercial business continues to face modest headwinds, growing by just 3% yr/yr. Management mentioned that while it remains committed to capitalizing on opportunities in Asia and the Middle East, it is primarily focused on accelerating growth in its U.S. commercial business.
- As Chief Revenue Officer Ryan Taylor noted, the AI revolution continues, supporting PLTR's upbeat guidance. The company anticipates Q1 revs of $858-862 mln, a 36% jump yr/yr at the midpoint, and FY25 revs of $3.741-3.757 bln, representing a 31% increase yr/yr at the midpoint.
PLTR's excellent Q4 performance highlights the increasing appetite among U.S. commercial and government organizations to ensure they are not left behind in the current AI race. PLTR's results also bring to the forefront its competitive advantage. PLTR has been aggressively investing in certain AI infrastructure that provides an intermediate representation of a business that AI can interact with. PLTR always viewed chatbots as a dead end, noting that they require interaction to allocate inventory, onboard customers, etc., everything required to automate a business. This is where PLTR expects to win over the long term.
ATI Inc. bounces back nicely in Q4 following Q3 miss, airplane production is ramping back up (ATI)
Allegheny Tech (ATI +9%) is putting the pedal to the metal today after the company bounced back from an EPS miss in Q3 to report huge upside in Q4. ATI is a supplier of high performance metals for aerospace & defense (particularly jet engines, airframes) at 62% of FY24 revs. It also has exposure to energy (14%), automotive (6%), medical (5%) etc. We like to monitor ATI so we can gauge the health of the aerospace industry as ATI provides content to all major engine and airframe OEMs.
- Revenue rose 10.2% yr/yr in Q4 to $1.17 bln, which was nicely ahead of analyst expectations and its first double-digit growth quarter since 1Q23. Revenue in Q4 was higher than ATI had expected as customer demand improved from Q3. However, mix was a bit weaker than anticipated due to short term shifts in customer requirements.
- EPS guidance was solid as well with its Q1 mid-point coming in ahead of expectations. 2025 EPS guidance was in-line at $2.80-3.00. ATI says it ended the year on a high note that gives it momentum heading into 2025. Importantly, ATI is forecasting that 2025 adjusted EBITDA will build each successive quarter during the year. ATI expects 1H25 to reflect modest recovery as the commercial aero supply chain rebounds and subsequently grows following delays in the aero ramp in 2H24.
- ATI says that 2025 demand remains robust and that Boeing (BA) is bouncing back as it is ramping 737 MAX production. Airbus remains steady with opportunities for upside as they push their ramp rates. ATI is seeing stability as anxiety comes out of the supply chain. ATI said that demand for its materials comes from every segment of the aerospace industry as its products are on every commercial platform flying today.
- The company noted that its 2025 guidance is in-line with Boeing's projections and as an early member in the value stream, ATI expects to be one of the first to see increased pull as Boeing strives to meet ramping build rates. For 2026, Boeing publicly stated that the 787 build will increase from 5 to 7, which ATI sees as a another sign of increasing stability. Also, the 777X is entering back into service, a milestone many have been looking forward to.
Overall, this was an impressive finish in 2024 for ATI, which was a tough year for ATI. The company had to endure delays in the aero ramp in 2H24 following Boeing's labor strike. The good news is that ATI is notably more bullish on 2025, especially in the back half of the year. That comports with what we heard on Boeing's call last week, namely that demand for air travel remains strong and it is ramping back up its production schedule. Specifically, Boeing said it delivered only 36 airplanes in all of Q4, but had delivered 33 in January alone. That is good news for ATI and other aerospace suppliers.
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.
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