| | | Market Snapshot
| Dow | 44872.20 | +317.24 | (0.71%) | | Nasdaq | 19774.23 | +38.31 | (0.19%) | | SP 500 | 6061.48 | +23.60 | (0.39%) | | 10-yr Note | +29/32 | 4.42 |
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| | NYSE | Adv 1937 | Dec 805 | Vol 1.0 bln | | Nasdaq | Adv 2892 | Dec 1442 | Vol 6.7 bln |
Industry Watch
| Strong: Utilities, Real Estate, Financials, Health Care, Information Technology |
| | Weak: Communication Services, Consumer Discretionary |
Moving the Market
-- Reacting to big batch of earnings news; GOOG fell short of high expectations
-- Losses in other mega caps weighing down major indices, but NVIDIA outperforming
-- Buying interest in other areas of the market
-- Treasury yields lower on some safe-haven interest and a reaction to some weaker-than-expected Services PMI readings for January out of China and the eurozone
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Closing Summary
05-Feb-25 16:30 ET
Dow +317.24 at 44872.20, Nasdaq +38.31 at 19774.23, S&P +23.60 at 6061.48
[BRIEFING.COM] The stock market traded with a positive bias, but index performance was mixed due to declines in highly influential names. The Nasdaq Composite, which flirted with the unchanged mark through most of the session, ultimately settled 0.2% higher. The S&P 500 logged a 0.4% gain and the Dow Jones Industrial Average jumped 0.7%.
Alphabet (GOOG 193.30, -14.41, -6.9%), which had been on an impressive run, saw a sharp decline after its earnings results didn't meet the high expectations set by investors, compounded by its $75 billion capital expenditure plan for 2025. This loss followed a recent peak all-time high of over $204 just five days ago on January 31.
Apple (AAPL 232.47, -0.33, -0.1%) was also in the red after a Bloomberg report surfaced that China was contemplating a probe into its App Store fees and policies. Shares recovered nicely off their worst levels, though, after trading down as much as 1.9%.
Walt Disney (DIS 110.54, -2.76, -2.4%) was another notable decliner, slipping 2.4% after reporting a drop in Disney+ subscribers.
Despite these challenges, market breadth was broadly positive, with advancers outnumbering decliners by nearly a 2-to-1 ratio on both the NYSE and the Nasdaq. The equal-weighted S&P 500 was up 0.5% and eight of the 11 S&P 500 sectors closed higher.
The drop in market rates contributed to the upside bias in equities. The 10-yr yield dropped nine basis points to 4.42% and the 2-yr yield dropped four basis points to 4.18%. The rally in the Treasury market followed weaker-than-expected Services PMI readings for January out of China, Europe, and the U.S. that fostered some growth concerns.
The rally in the bond market was undeterred by the news from the U.S. Treasury that it will increase the size of this month's 10-, 20-, and 30-yr auctions by three billion apiece.
Buying in the Treasury market was partially fueled by heightened geopolitical uncertainty following surprise comments from President Trump during a press conference with Israeli Prime Minister Netanyahu indicating that the U.S. would take over the Gaza Strip. However, the aforementioned economic data seemed to be more influential than geopolitical worries, which weren't reflected in commodity prices. Oil prices usually increase amid increased conflict in the Middle East due to worries about supply disruptions, but WTI crude oil futures settled below their 50-day moving average (72.13) at $71.11/bbl, the lowest level of the year thus far.
- Dow Jones Industrial Average: +5.5% YTD
- S&P Midcap 400: +4.1% YTD
- Russell 2000: +3.9% YTD
- S&P 500: +3.1% YTD
- Nasdaq Composite: +2.0% YTD
Reviewing today's economic data:
- The December Trade Balance Report showed a widening in the deficit to $98.4 billion (Briefing.com consensus -$98.0 billion) from a downwardly revised $78.9 billion (from -$78.2 billion) in November. December exports were $7.1 billion less than November exports while December imports were $12.4 billion more than November imports.
- The key takeaway from the report is that the big jump in imports was presumably a function of trying to get ahead of possible tariff actions.
- January S&P Global US Services PMI - Final 52.9 vs. 52.8 prior
- The ISM Services PMI decreased to 52.8% in January (Briefing.com consensus 53.9%) from a downwardly revised 54.0% (from 54.1%) in December. The dividing line between expansion and contraction is 50.0%, so the January reading reflects services sector activity expanding but at a slower pace than the prior month. January marked the 53rd time in 56 months that the Services PMI indicated expansion.
- The key takeaway from the report is that the pace of expansion in the nation's largest sector decelerated in January. That will likely temper growth forecasts for the first quarter.
Market participants receive the following economic data on Thursday:
- 8:30 ET: Preliminary Q4 Productivity (actual 0.8%; prior 2.2%) and Unit Labor Costs (Briefing.com consensus 2.6%; prior 0.8%), weekly Initial Claims (Briefing.com consensus 213,000; prior 207,000), and Continuing Claims (prior 1.858 mln)
- 10:30 ET: Weekly natural gas inventories (prior -321 bcf)
Stocks move toward highs ahead of the close
05-Feb-25 15:30 ET
Dow +305.77 at 44860.73, Nasdaq +13.87 at 19749.79, S&P +19.77 at 6057.65
[BRIEFING.COM] The Dow Jones Industrial Average is more than 300 points higher at its best level of the session. The S&P 500 (+0.3%) and Nasdaq Composite (+0.1%) are both higher with 30 minutes left in the session.
Elsewhere, the 10-yr yield dropped nine basis points to 4.42% and the 2-yr yield dropped four basis points to 4.18%.
Market participants receive the following economic data on Thursday:
- 8:30 ET: Preliminary Q4 Productivity (actual 0.8%; prior 2.2%) and Unit Labor Costs (Briefing.com consensus 2.6%; prior 0.8%), weekly Initial Claims (Briefing.com consensus 213,000; prior 207,000), and Continuing Claims (prior 1.858 mln)
- 10:30 ET: Weekly natural gas inventories (prior -321 bcf)
Earnings after the open
05-Feb-25 15:00 ET
Dow +238.31 at 44793.27, Nasdaq -12.11 at 19723.81, S&P +11.53 at 6049.41
[BRIEFING.COM] The Dow Jones Industrial Average trades near its intraday high while the Nasdaq Composite reached its flat line again.
Ford (F), McKesson (MCK), MetLife (MET), Allstate (ALL), Molina Healthcare (MOH), Cognizant Tech (CTSH), O'Reilly Auto (ORLY), Corteva (CTVA), Coherent (COHR), and others report earnings after the close.
Looking ahead, ConocoPhillips (COP), AstraZeneca (AZN), Eli Lilly (LLY), Honeywell (HON), Aptiv (APTV), and others report earnings tomorrow morning.
Stocks move sideways
05-Feb-25 14:35 ET
Dow +264.56 at 44819.52, Nasdaq -11.27 at 19724.65, S&P +10.35 at 6048.23
[BRIEFING.COM] The Nasdaq Composite trades about 0.1% lower and the S&P 500 sports a 0.2% gain.
Only two S&P 500 sectors remain in negative territory at this point. The consumer discretionary sector trades 1.4% lower and the communication services sector trades 3.2% lower.
Elsewhere, the 10-yr yield sits at 4.42%.
DJIA continues to run ahead of Nasdaq and S&P 500
05-Feb-25 14:00 ET
Dow +209.45 at 44764.41, Nasdaq -29.28 at 19706.64, S&P +9.43 at 6047.31
[BRIEFING.COM] The Dow Jones Industrial Average (+0.5%) is outpacing the Nasdaq Composite (-0.2%) and S&P 500 (+0.2%) today, much like it has done since the start of the year.
Today's outperformance comes despite losses in UnitedHealth Group (UNH 537.05, -8.40, -1.5%), Amazon.com (AMZN 236.78, -5.28, -2.2%), Apple (AAPL 230.15, -2.65, -1.1%), and Walt Disney (DIS 111.76, -1.54, -1.4%), which is falling after reporting quarterly results that featured a large qtr/qtr drop in Disney+ subscribers.
Fortunately, the majority of components (20 to be exact) are sporting gains today, including Amgen (AMGN 306.05, +17.04, +5.9%) after its earnings report, and the highest-priced Dow stock of all: Goldman Sachs (GS 643.25, +9.07, +1.4%).
Goldman's gain is contributing to an 0.8% increase in the S&P 500 financial sector.
Walt Disney shares "Frozen" despite strong profit growth as guidance disappoints (DIS)
Walt Disney (DIS) put the finishing touches on a banner year for its theatrical business as its latest blockbuster hit, Moana 2, highlighted a solid 1Q25 earnings report that featured a 44% jump in adjusted EPS to $1.76. Also significantly contributing to the strong earnings growth was the DTC business, which continued its upward trajectory for profitability mainly due to price increases for the Disney+ and Hulu streaming services. However, DIS shares are acting a bit "Frozen" today despite the healthy earnings growth in Q1, likely because the company chose not to raise its FY25 EPS guidance, instead opting to reaffirm its outlook of high-single-digit growth.
- Like last quarter, the film studio business stole the show in Q1 as Moana 2 followed in the footsteps of Inside Out 2 and Deadpool & Wolverine, becoming a blockbuster hit that fueled a 34% jump in revenue to $2.2 bln for the Content Sales/Licensing unit. In turn, the business also swung to profitability this quarter, generating operating income of $312 mln compared to $(224) mln in the year-earlier quarter.
- Meanwhile, the DTC unit, which is also part of the Experiences segment, has completely turned the corner after piling up substantial losses in the 2020-2023 timeframe as DIS went all in on growing the Disney+ subscriber base. Following last quarter's swing to profitability, DTC built upon that momentum with operating income improving by $431 mln on a yr/yr basis to $293 mln. Higher ARPU of 5% for Disney+ and 4% for Hulu (Live TV + SVOD) resulting from price increases was the key behind the gains.
- Encouragingly, those price increases didn't generate as much churn as anticipated. Disney+ shed about 700,000 subscribers versus Q4 to end the quarter with 124.6 mln total subscribers, beating analysts' expectations. However, DIS did guide for a modest decline in Disney+ subscribers for Q2, creating some unease that a negative trend could be forming.
- Turning to the theme park business, the results were better-than-feared following a disappointing Q4 in which operating income declined by 6% in the Experiences segment. A slowdown at the international theme parks, sluggish consumer spending trends, and the impact from Hurricanes Helene and Milton on Walt Disney World and cruises, painted an ominous picture. Demand held up quite well, though, as Experiences revenue edged higher by 3% to $9.4 bln with operating income flat at $3.1 bln. That looks more impressive when considering that theme parks took a $120 mln hit from the hurricanes.
- Lastly, DIS also disclosed that Disney+ will become the home to all of the company's streaming products -- including sports and ESPN. This coming fall, a new ESPN streaming product will become available on Disney+, taking the place of the company's previous plan of launching a new sports streaming joint venture with Fox (FOX) and Warner Bros Discovery (WBD) called Venu.
Overall, it was another solid quarter for DIS as its improving profitability took center stage, but the company's decision to maintain its FY25 EPS guidance rather than increase it is a source of disappointment today.
Snap pulls back from after-hour highs on Q4 results; few rough patches weigh significantly (SNAP)
After initially soaring on Q4 results during yesterday's after-hours session, Snap (SNAP -7%) quickly snapped back, opening lower today with selling pressure continuing to mount. The social media platform's Q4 results were solid, posting a beat on its top and bottom lines, surpassing its daily active user (DAU) guidance, and projecting Q1 revenue mostly above consensus, incorporating another uptick in DAUs.
So why did selling pressure quickly ensue? SNAP is a volatile stock, often experiencing swings of mid-to-high single-digit percentages without any market-moving events. It also does not help that SNAP caught a downgrade today at Wells Fargo. Meanwhile, there were a few weak spots in SNAP's guidance. The company's DAU outlook for Q1 of approximately 459 mln represents an 8.8% increase yr/yr, a minor slowdown in growth compared to Q4, when DAUs grew by 9.4% yr/yr to 453 mln, consistent with growth over the previous two quarters. Also, even though the midpoint of SNAP's Q1 revenue forecast of $1.325-1.360 bln edged past analyst expectations, it marks another quarter of weakening revenue growth, translating to a 12.4% jump versus a 14.4% increase in Q4, 15.4% in Q3, 15.8% in Q2, and 20.9% in Q1.
- There was still plenty to like from SNAP in Q4. The company delivered GAAP EPS of $0.01, exceeding analysts' more bearish expectations of another net loss. It also marked SNAP's first quarter of GAAP profitability in three years, a headline that may have initially triggered a wave of buying support.
- Revenue of $1.56 bln was underpinned by SNAP's continuous progress with its Direct Response (DR) advertising business and the growth of its Snapchat+ subscription offering. For the year, DR ad revs expanded by 16% yr/yr while Snapchat+ doubled its subscriber base to 14 mln, pushing revenue 131% higher and comprising around a tenth of total revenue.
- Looking at 2025, SNAP is focused on a few key initiatives to build on its momentum from 2024. Advertising will be its main focus, touting new ad placements to provide advertisers with incremental reach. SNAP is also improving its go-to-market approach by offering actionable insights to ad partners and introducing automated campaign tools. Other initiatives involve enhancing its app and advancing its ML infrastructure to drive better ad interactions.
- SNAP is also committed to returning users to its platform following some engagement losses over the years, particularly with its Stories page. Management mentioned it has several ideas that it will work on rolling out in the coming weeks and months. Furthermore, SNAP mentioned that there could be some room for price hikes within its Snapchat+ offering, helping boost ARPU.
Even though SNAP is trading markedly lower today, its shares remain range-bound. The market is likely waiting for a more encouraging outlook from SNAP before supporting a more sustained rally above previous $13.00 resistance. As such, while SNAP may experience relatively aggressive swings over the near term, it could stay stuck in a range until brighter horizons appear.
Alphabet tumbles as company plans huge ramp up in AI spending after Cloud growth slows in Q4 (GOOG)
With shares trading at record highs ahead of its 4Q24 earnings report, Google parent Alphabet (GOOG) had little margin of error in its quarterly results, especially after Meta Platforms (META) raised the bar one week ago when it blew out Q4 estimates. Unfortunately for GOOG and its shareholders, its earnings report wasn't pristine, and its performance failed to live up to the market's lofty expectations, instigating a steep selloff. A modest top-line miss caused by a slowdown in growth for GOOG's Cloud segment is one of the most glaring blemishes.
Compounding the issue, the tech giant also said that it expects to spend a staggering $75.0 bln in capex this year as it ramps up investments for servers and data centers in its pursuit to lead the AI race. In the aftermath of the DeepSeek revelation -- China's AI model that's similar to ChatGPT but cost significantly less to develop -- many are questioning whether GOOG and others like META are getting anywhere near enough bang for their buck.
- As anticipated, GOOG's advertising business had another solid quarter, bolstered by the same healthy spending climate that drove META's impressive Q4 results. Google Advertising revenue increased 10.6% to $72.5 bln, led by a near 14% jump in YouTube ads revenue. Robust ad spending around the U.S. election provided a potent catalyst for YouTube. In fact, GOOG stated that advertising spending from both parties almost doubled compared to the 2020 election.
- Also similar to META, GOOG's investments in AI are enhancing its advertising capabilities in media, buying, creative, and measurement, providing it with a competitive advantage over other platforms. These improvements helped drive Search revenue higher by 12.5% to $54.0 bln, edging past analysts' expectations.
- The main source of disappointment stems from the Cloud segment, where revenue of $12.0 bln came up a bit short of estimates. Revenue growth had been trending steadily higher in recent quarters, easing fears that Google Cloud was falling further behind Microsoft (MSFT) Azure, but that upswing came to an end in Q4. Following last quarter's increase of 35%, Cloud revenue growth slowed to 30% in Q4, mainly due to capacity constraints.
- Substantially increasing spending while growth is slowing doesn't typically go over well with investors and that's what GOOG is planning for FY25. Specifically, the company's $75.0 bln in capex reflects a yr/yr increase of about 43%. Meanwhile, GOOG also cautioned during the earnings call that advertising revenue in 2025 will be impacted by lapping the strength it experienced in the financial vertical throughout 2024, and that it could experience variability in Cloud revenue due to the timing of deployment of new capacity.
The main takeaway is that the slowdown in Cloud growth, combined with an expected huge increase in capex spending for FY25, has created a recipe for a steep profit-taking pullback in a stock that was trading at record highs.
Chipotle heads lower following lackluster Q4 comps and 2025 guidance (CMG)
Chipotle (CMG -2%) is heading lower following its Q4 earnings results last night. The burrito restaurant chain reported modest EPS upside while revenue rose 13.1% yr/yr to $2.85 bln, which was in-line. Comps were a bit light and the 2025 guidance was lackluster. Importantly, this was the first earnings call since Scott Boatwright was promoted to CEO in November. He replaced Brian Niccol who stepped down to become Chairman and CEO of Starbucks (SBUX).
- CMG said on its Q3 call that it expected Q4 comps to modestly accelerate from Q3's +6.0% comp, but they were a bit lower at +5.4%, driven by higher transactions of +4.0% and a +1.4% increase in average check. The company was pleased with its Q4 results considering they were lapping a very successful Carne Asada limited time offer (LTO) from last year. Transaction comps were positive in all months in Q4, driven by the launch of Brisket and continued improvement in throughput. CMG also saw softer trends around the holidays as Christmas and New Year's fell in the middle of each week. Also, 0.2% was shaved off comps as CMG had to true-up its loyalty program at year-end.
- The 2025 low to mid-single digit comp guidance was a letdown after posting +7.4% comps in 2024. CMG said comps thus far in 2025 have been volatile with weather having a larger impact than last year. Also, in Q2, CMG will be rolling off about 90 bps of price increases implemented in April 2024, so that will impact comps. Furthermore, Easter will fall back into Q2, which will hurt Q2 comps by about 100 bps, with no net benefit in Q1 because of leap day in the prior year. Another thing to remember is that CMG will be lapping a very successful Braised Beef Barbacoa campaign from Feb 2024 and the second iteration of its popular Chicken al Pastor in March 2024. Q2 should be the low point for comps with improvement in 2H25.
- A key focus in 2025 will be on modernizing the kitchen to improve speed and simplicity of prep. For example, CMG is currently rolling out produce slicers to all restaurants, which should be complete by this summer. This is one of the most time-consuming tasks. CMG expects efficiencies from the produce slicer will help offset investments made last year to ensure generous portion sizes.
- In terms of the menu, CMG said its Chipotle Honey Chicken pilot was a success. That was its best-performing LTO, both in early sensory testing as well as the broader two market tests. CMG plans to roll out more broadly in the near future. In terms of new openings, CMG opened a record 304 new locations in 2024, including 257 Chipotlanes. CMG also reaffirmed plans to open 315-345 new locations in 2025, with at least 80% including a Chipotlane. CMG recently passed 1,000 locations.
- On the cost side, there have been concerns about how tariffs with Mexico might impact avocado prices. CMG responded that it has diversified its supply chain over the last two years. Today, CMG sources from Colombia, Peru, and the Dominican Republic. Only about 50% of its avocado supply today comes from Mexico.
Overall, this was a lackluster finish to 2024 with comps being light. Also, the 2025 comp guidance was a letdown, this seems to be the main reason for the weakness in the stock today. In fairness, CMG is lapping two successful LTO's and a price increase will roll off, but investors wanted a brighter picture on comps. Keep in mind that a new CEO is in place, it will take time to see if he is just being more conservative with guidance. However, CMG mentioning volatility in Dec/Jan comps makes us nervous.
Advanced Micro Devices hits 52-week lows following milder-than-expected Data Center revs in Q4 (AMD)
Advanced Micro Devices (AMD -9%) drops to one-year lows today despite exceeding Q4 earnings and sales estimates and issuing Q1 revenue guidance consistent with analyst estimates. Today's sell-off was triggered by a concerning miss on Data Center segment revenue in the quarter. The chip designer, competing against NVIDIA (NVDA) and Intel (INTC) in the AI race, grew its Data Center revs by 69% yr/yr to $3.9 bln. While this was a record quarter for AMD, it fell short of street estimates by a meaningful margin. While consensus called for a slowdown from the +122% yr/yr growth posted last quarter, the market was surprised to see such a considerable deceleration in Q4.
- AMD noted that 2024 still marked a major infection point for its server business as share gains accelerated, exiting 2024 with well over 50% share at the majority of its largest hyperscale customers. AMD is likely aggressively capturing market share from INTC. In Q4, INTC's Data Center and AI (DCAI) segment revenue declined by 3% yr/yr, weakening from a 9% increase in Q3.
- On the GPU side, AMD's MI300X production deployments expanded with its largest cloud partners in Q4. For instance, Meta Platforms (META) exclusively used MI300X to serve its Llama 405B model. Production of AMD's upcoming successor platforms is progressing nicely. The company noted that it began volume production of MI325X in Q4. Also, AMD is seeing strong customer interest in its MI350 series and is on track to accelerate production shipments by mid-year. Meanwhile, the development of its MI400 series is progressing well.
- Even though Data Center revenue did not live up to expectations, AMD posted accelerating overall revenue growth of 24.2% yr/yr to $7.66 bln versus a +17.6% jump last quarter. Meanwhile, adjusted EPS of $1.09 represented a slim beat, a return to delivering modest upside following last quarter's in-line earnings performance.
- Client segment revenue supported AMD's top-line beat, expanding by 58% yr/yr to $2.3 bln. Like its Data Center segment, AMD is enjoying market share capture in this segment, given that INTC's Client segment endured a 9% drop in Q4. AMD mentioned that it had record desktop channel sell-out in Q4, reflecting healthy demand for its Ryzen processor.
- On the flip side, Gaming and Embedded posted revenue declines of 59% and 13% yr/yr, respectively. AMD expects declines to persist in Q1, dragging down its revenue forecast slightly, predicting $6.8-7.4 bln, translating to a 30% improvement yr/yr at the midpoint.
With no signs of AI spending slowing down, highlighted by AMD supplier Taiwan Semi's (TSM) robust Q4 numbers last month, with the company predicting AI-related revenue to double yr/yr in 2025 following a more than tripling in 2024, investors are expressing frustration with AMD's Data Center performance in the quarter. The segment has been a silver lining among the dull performances from AMD's other divisions, including Gaming and Embedded, which continued to languish in Q4. There are still encouraging developments on the horizon, particularly surrounding upbeat interest for AMD's upcoming AI platforms, which will likely cost far less than NVDA's flagship Blackwell GPU platform, which could begin to reignite investor interest over the coming months.
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