Market Snapshot
| Dow | 44746.55 | -125.65 | (-0.28%) | | Nasdaq | 19873.89 | +99.66 | (0.50%) | | SP 500 | 6083.57 | +22.09 | (0.36%) | | 10-yr Note | -1/32 | 4.44 |
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| | NYSE | Adv 1302 | Dec 1399 | Vol 1.0 bln | | Nasdaq | Adv 1998 | Dec 2331 | Vol 6.7 bln |
Industry Watch
| Strong: Consumer Staples, Financials, Information Technology |
| | Weak: Energy, Utilities, Health Care |
Moving the Market
-- Ongoing inclination to buy on weakness, yet not a lot conviction after big run
-- Price action in Treasury market contributing to volatility in equities
-- Digesting huge batch of earnings news, which garnered mixed responses, and some economic data, which was mostly supportive for the equity market
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Closing Summary
06-Feb-25 16:30 ET
Dow -125.65 at 44746.55, Nasdaq +99.66 at 19873.89, S&P +22.09 at 6083.57
[BRIEFING.COM] The stock market traded in mixed fashion through most of the session. The major indices traded above and below their prior closing levels due to a lack of conviction from either buyers or sellers. The S&P 500 and Nasdaq Composite ultimately closed near their highs, though, thanks to a late surge of buying in some mega cap names.
There was no specific new item to account for the afternoon climb that was driven by an ongoing inclination to buy on weakness, along with some short-covering activity. Apple (AAPL 233.22, +0.75, +0.3%) was among the influential beneficiaries of the increased buying after trading down as much as 0.9%.
Market breadth was still negative at the close, however. Decliners led advancers by a fractional margin at the NYSE and by an 11-to-10 margin at the Nasdaq.
Outsized moves were mostly reserved for stocks that reported earnings. Qualcomm (QCOM 169.32, -6.54, -3.7%) was a standout in that regard, sparking selling interest in other semiconductor-related. Ford Motor (F 9.26, -0.75, -7.5%) and Skyworks Solutions (SWKS 65.60, -21.48, -24.7%) were also noticeable laggards, logging fresh 52-week lows in response to earnings.
Tapestry (TPR 82.20, +8.82, +12.0%), Ralph Lauren (RL 273.14, +24.14, +9.7%), and Phillip Morris (PM 145.32, +14.34, +11.0%), which each hit a 52-week high, were standouts on the winning side, along with Hershey (HSY 152.34, +6.42, +4.4%).
Separately, The 10-yr settled two basis points higher at 4.44% and the 2-yr yield settled three basis points higher at 4.21%.
- Dow Jones Industrial Average: +5.2% YTD
- S&P Midcap 400: +4.1% YTD
- Russell 2000: +3.5% YTD
- S&P 500: +3.4% YTD
- Nasdaq Composite: +2.5% YTD
Reviewing today's economic data:
- Q4 Productivity-Prel 1.2% (Briefing.com consensus 0.8%); Prior was revised to 2.3% from 2.2%, Q4 Unit Labor Costs-Prel 3.0% (Briefing.com consensus 2.6%); Prior was revised to 0.5% from 0.8%
- The key takeaway from the report is that the productivity is on the rise, which will help temper inflation pressures. The 1.8% annualized rate of productivity growth in the current business cycle (starting Q4 2019) is higher than the 1.5% rate of the previous business cycle (Q4 2007 through Q4 2019).
- Weekly Initial Claims 219K (Briefing.com consensus 213K); Prior was revised to 208K from 207K, Weekly Continuing Claims 1.886 mln; Prior was revised to 1.850 mln from 1.858 mln
- The key takeaway from the report is that there simply hasn't been a material increase in initial jobless claims, which would suggest there is some real weakening in the labor market. Hiring activity might have slowed, but the layoff activity does not impart an indication that employers think the economy is on the brink of a meaningful slowdown.
Looking ahead to Friday, market participants receive the following economic data:
- 8:30 ET: January Nonfarm Payrolls (Briefing.com consensus 155,000; prior 256,000), Nonfarm Private Payrolls (Briefing.com consensus 163,000; prior 223,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Unemployment Rate (Briefing.com consensus 4.1%; prior 4.1%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
- 10:00 ET: Preliminary February University of Michigan Consumer Sentiment (Briefing.com consensus 71.3; prior 71.1) and December Wholesale Inventories (Briefing.com consensus -0.5%; prior -0.2%)
- 15:00 ET: December Consumer Credit (Briefing.com consensus $13.4 bln; prior -$7.5 bln)
Major indices sit near unchanged mark ahead of the close
06-Feb-25 15:30 ET
Dow -188.65 at 44683.55, Nasdaq +24.98 at 19799.21, S&P +7.15 at 6068.63
[BRIEFING.COM] The S&P 500 and Nasdaq Composite are just above prior closing levels heading into the close.
The 10-yr settled two basis points higher at 4.44% and the 2-yr yield settled three basis points higher at 4.21%.
Looking ahead to Friday, market participants receive the following economic data:
- 8:30 ET: January Nonfarm Payrolls (Briefing.com consensus 155,000; prior 256,000), Nonfarm Private Payrolls (Briefing.com consensus 163,000; prior 223,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Unemployment Rate (Briefing.com consensus 4.1%; prior 4.1%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
- 10:00 ET: Preliminary February University of Michigan Consumer Sentiment (Briefing.com consensus 71.3; prior 71.1) and December Wholesale Inventories (Briefing.com consensus -0.5%; prior -0.2%)
- 15:00 ET: December Consumer Credit (Briefing.com consensus $13.4 bln; prior -$7.5 bln)
Stocks and bonds little changed after tax plan news
06-Feb-25 15:00 ET
Dow -209.16 at 44663.04, Nasdaq +4.04 at 19778.27, S&P -0.69 at 6060.79
[BRIEFING.COM] The S&P 500 dipped below its prior close over the last half hour.
Earlier, Axios reported that President Trump will present a tax plan to GOP lawmakers which includes extension of the 2017 tax cuts, including an elimination of the carried interest tax deduction and tax breaks for sports teams.
Treasury yields are little changed following the news. The 2-yr yield is at 4.21% and the 10-yr yield is at 4.44%.
Many stocks moved lower as the session progressed
06-Feb-25 14:40 ET
Dow -220.23 at 44651.97, Nasdaq -10.95 at 19763.28, S&P +2.91 at 6064.39
[BRIEFING.COM] The major indices continue to trade in mixed fashion after sticking to a sideways flow over the last half hour.
Market breadth was positive in the early going, but shows a negative disposition under the index surface now. Declines lead advancers by a roughly 3-to-2 margin at both the NYSE and at the Nasdaq.
The equal-weighted S&P 500 trades 0.6% lower.
Energy sector under pressure
06-Feb-25 14:00 ET
Dow -198.82 at 44673.38, Nasdaq +60.78 at 19835.01, S&P +9.79 at 6071.27
[BRIEFING.COM] The stock market continues to meander in a mixed fashion through today's session. That mixed disposition is evident in breadth figures that show advancers and decliners close to even at both the NYSE and Nasdaq.
The one pocket of weakness from a sector standpoint (emphasis on the word "one") is the energy sector (-1.7%). It is the only sector down more than 1.0%; in fact, it is the only sector in this mixed market that is up, or down, more than 1.0%.
The upside leader is the consumer staples sector (+0.7%), which is being lifted by Philip Morris Intl. (PM 142.98, +12.00, +9.2%) and Hershey (HSY 153.41, +7.49, +5.1%) after their earnings reports.
With respect to the S&P 500 energy sector, there isn't a single component trading higher at this time. WTI crude prices ($70.50, -0.53, -0.8%) are tracking toward the $70.00 per barrel mark after topping $79.00 per barrel in mid-January.
Hershey Foods jumps off multi-year lows after Q4 results; notes cocoa prices not sustainable (HSY)
Surging cocoa prices have been a sticky mess throughout the past several quarters for Hershey Foods (HSY +4%), putting outsized pressure on the chocolate and snack food titan's earnings. HSY does not anticipate cocoa prices to ease anytime soon, either, warning that this headwind will continue to pressure its bottom line significantly in 2025.
However, HSY's focus on fueling top-line and share momentum while making progress on its efficiency programs has provided some much-needed investor relief today.
- HSY exited a tumultuous FY24 on a high note, delivering double-digit earnings upside, a return to exceeding estimates following back-to-back quarters of misses. This came on a healthy 8.7% improvement in revenue yr/yr to $2.89 bln, reversing two straight quarters of yr/yr contractions. The gains in the quarter reflected benefits from HSY's strategies, such as media investments and new product launches, including Reese's Lava Big Cup, Shaq-a-licious XL Gummies, and Jolly Rancher Ropes.
- North American Salty Snacks retail sales led the charge in Q4, accelerating to 7.1% yr/yr, led by the sustained demand for SkinnyPop and Dot's Pretzels. Part of HSY's media investment involves bringing on a new celebrity spokesperson for its SkinnyPop brand, which the company noted will roll out soon.
- U.S. Candy, Mint and Gum retail sales increased by 2% yr/yr, supported by seasonal strength, with sales inching 2.5% higher during Halloween and 1.1% higher during the holiday season. Pricing played a role in the quarter, edging 4% higher, slightly above the company's expectations, driven by carryover pricing from 2023. HSY anticipates this level to persist in 2025, with a planned price realization of 3-4% in its U.S. Confection segment.
- International sales were solid, delivering double-digit constant currency organic sales growth in Mexico and the EMEA region. Reese's was a major contributor, posting double-digit revenue growth across international markets.
- Turning to cocoa, HSY noted it had good visibility into its costs and supply. Management stated that current sky-high prices of cocoa, which tripled in just four months to start 2024, pulling back only moderately since, are not reflective of market fundamentals, noting that global demand will plummet due to persistent high market prices. HSY added that it was already seeing signs of cocoa end users adapting through reformulation and hedging mechanisms, which it anticipates will accelerate.
- Still, in the short term, earnings will remain pressured, reflected by HSY's FY25 adjusted EPS outlook of $6.00-6.18, a 35% plunge from FY24 at the midpoint. However, HSY's FY25 revenue growth forecast of at least +2% was better than expected, showcasing decent brand loyalty and building on upward momentum from Q4. Meanwhile, the company is improving its cost structure, aiming for around $900 mln in savings between 2023 and 2026.
Cocoa prices are continuing to be a painful thorn in HSY's side. However, the company is not melting under this pressure. While FY25 earnings look weak, HSY continues to conduct the right moves to position itself for growth over the long run.
Qualcomm's solid Q1results overshadowed by concerns about licensing business, China exposure (QCOM)
Despite handily beating 1Q25 EPS and revenue expectations and issuing upside guidance for Q2, Qualcomm (QCOM) is trading sharply lower as concerns surrounding the chip company's licensing business swirl. While the QTL segment only accounts for approximately 15% of QCOM's total revenue, it is highly profitable with EBT margins in the 75% range compared to roughly 32% for the QCT semiconductor business. Due to these strong margins, the QTL segment accounted for 36% of total EBT in Q1.
Therefore, any risk to that business has the potential to hit the stock, which is the case today as QTL revenue of $1.54 bln fell just short of estimates and as QCOM issued disappointing QTL guidance for Q2, forecasting revenue of $1.25-$1.45 bln, implying yr/yr growth of just 2% at the midpoint of the range. In Q1, revenue for QTL grew by 5% to $1.54 bln.
- One issue for QTL is that the company doesn't anticipate generating any revenue from Huawei, the China-based manufacturer of telecommunications equipment and consumer electronics that has been impacted by U.S. restrictions and sanctions. The bigger issue, though, is the possibility that QCOM could lose contracts with more Chinese OEMs as the trade war between the U.S. and China heats up.
- QCOM has been attempting to diversify its revenue streams and end markets over the past several years, but China still accounts for approximately 45% of its total business. Currently, the company's technological competitive advantages are enabling it to fend off competition in China, particularly in the high-end smartphone market which is its bread-and-butter business. For instance, QCOM's premium Snapdragon 8 Elite chipsets, which are embedded into higher-end Android handsets, are generating healthy demand. Over time, however, Chinese competitors may chip away at QCOM's dominance in this market.
- Coming off a solid Q4 that saw Handset revenue grow by 12%, QCOM's largest end market (~65% of total revenue) was strong again in Q1 as Handset revenue jumped by 13% to $7.6 bln. The growth reflects higher volume and content increases in Android premium phones driven by stronger consumer demand for recently launched phones. For Q2, QCOM is expecting a slight slowdown in growth, guiding for QCT handset revenues to grow by approximately 10%.
- Looking a bit further out on the horizon, QCOM is likely to see a sharp drop-off in its sales to Apple (AAPL) -- a 10% customer -- since AAPL is moving towards its own chips. In fact, by the end of 2026, nearly all of QCOM's business with AAPL may be gone. This headwind is well-documented, though, and is likely already priced into the stock. Since mid-June of 2024, shares have fallen by more than 25%.
- On a more positive note, the Internet of Things (IoT) end market is experiencing real momentum with revenue jumping by 36% to $1.5 bln, easily beating expectations. This business turned a corner last quarter as revenue growth swung back into positive territory at 22% after posting yr/yr declines in each of the prior three quarters in FY24. The primary catalyst for the turnaround is QCOM's entrance and expansion into the PC/laptop markets with the recent launch of its Snapdragon X Plus 8-core platform. This new chipset is helping to power new AI tools, including PCs with Copilot+.
The main takeaway is that QCOM's better-than-expected Q1 results and Q2 outlook are taking a beat seat to mounting concerns over its licensing business and its significant exposure to China. Momentum in the PC and automotive end markets (Q1 revenue surged by 61% there) should help ease the China-related headwinds, but a slowdown in China due to tariffs/trade policy still represents a significant risk.
Ford Motor hits a speed bump with cautious guidance for Q1 and 2025 (F)
Ford Motor (F -6.4%) is trading lower today following its Q4 earnings report last night. It beat on EPS although automotive revenue was light. We also got our first look at 2025 guidance: adjusted EBIT of $7.0-8.5 bln, $3.5-4.5 bln in adjusted free cash flow, and cap-ex of $8-9 bln. Ford reports in three business segments: Ford Blue (gas and hybrid vehicles, or ICE, internal combustion engines), Ford Pro (commercial fleet vehicles) and Ford Model e (EV segment).
- Adjusted EBIT is a key metric for Ford. In Q4, it rose 91% yr/yr to $2.1 bln. However, Ford guided Q1 adjusted EBIT to be roughly breakeven due to lower wholesales and unfavorable mix, including launch activity at major US assembly plants. However, Ford expects a more normalized adjusted EBIT in Q2 with a plan to hit its underlying EBIT level in 2H25 as cost improvements tied to lower material cost start to accrue to the bottom line.
- As usual, its Ford Blue segment dominates the financials with Q4 revs up 4% yr/yr to $27.3 bln while segment adjusted EBIT margin improved to 5.8% from 3.1% a year ago. In the ICE market, the industry's inventories and pricing have normalized. Ford also sees the Chinese OEMs continue to expand and be a major force in the industry. A headwind is that Ford expects lower volume and unfavorable mix driven by the non-repeat of last year's stock build.
- Its Ford Pro segment grew 6% yr/yr to $16.2 bln but segment EBIT dipped to 10.0% from 11.8%. Ford says the fundamentals of its Pro's business are strong, especially Super Duty chassis cabs and Transit wagon in North America and the Transit family in Europe. Its commercial business is focused on unit sales and series mix to maximize revenue. Pro is also building recurring revenue streams through its software and physical services business.
- Its Ford Model e segment struggled a bit with revs down 11% yr/yr to $1.4 bln. Ford said it continues to see new EV models launch, increased competition and increased pricing pressure. While continued industry pricing pressure remains, Ford plans to materially increase global volume in 2025, driven by the full year impact of European launches, and it has significantly increased investment in its battery facilities and next-gen products, which are just two years away. A silver lining on the US EV retail side is that a sweet spot has emerged with small- and medium-sized trucks and utilities.
- Ford also touched on the tariffs issue during the call. It said that if 25% tariffs from Canada and Mexico are protracted, that would have a huge impact on the industry with billions of dollars of industry profits wiped out and adverse effect on the US jobs. Tariffs would also mean higher prices for customers.
Overall, this was a bit of a disappointing end to 2024. We think the top line was a letdown, but even more so was the adjusted EBIT guidance for 2025 at $7.0-8.5 bln, that is a pretty big drop from $10.2 bln in 2024. Ford is planning for lower industry pricing of roughly 2% in 2025, driven by higher incentive spending. Also, the near term outlook is not great either with breakeven adjusted EBIT expected in Q1. Investors knew 2025 would be difficult, but were likely hoping for more. We also wonder if Ford's frothy 6.4% dividend yield could be at risk.
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.
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