Market Snapshot
| Dow | 44627.59 | +71.25 | (0.16%) | | Nasdaq | 20056.25 | +14.99 | (0.07%) | | SP 500 | 6144.15 | +14.57 | (0.24%) | | 10-yr Note | +1/32 | 4.54 |
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| | NYSE | Adv 1167 | Dec 1556 | Vol 1.0 bln | | Nasdaq | Adv 1957 | Dec 2390 | Vol 8.1 bln |
Industry Watch
| Strong: Energy, Health Care, Consumer Staples, Information Technology |
| | Weak: Materials, Financials, Communication Services, Real Estate, Consumer Discretionary |
Moving the Market
-- Ongoing resilience to selling efforts acting as upside catalyst
-- Gains in mega caps and chipmakers
-- Tariff talk in play after President Trump said the auto tariff rate will be in the neighborhood of 25% starting April 2, and that he is also considering tariffs for pharmaceuticals and semiconductors
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Closing Summary
19-Feb-25 16:30 ET
Dow +71.25 at 44627.59, Nasdaq +14.99 at 20056.25, S&P +14.57 at 6144.15
[BRIEFING.COM] Today's session started out similar to yesterday's session. That is, the major indices traded in lackluster fashion around their prior closing levels. The session also ended similar to yesterday's session, with the S&P 500 at a new record high.
The limited action in the early going was rooted in profit-taking activity, but stocks showed nice resilience to selling interest, which became its own upside catalyst by the close.
Strength in the mega cap and semiconductor spaces played an integral role in index gains. The PHLX Semiconductor Index (SOX) jumped 1.2%, and Microsoft (MSFT 414.77, +5.13, +1.3%), Apple (AAPL 244.87, +0.40, +0.2%), Alphabet (GOOG 187.13, +1.33, +0.7%), and Tesla (TSLA 360.56, +6.45, +1.8%) registered gains.
Outsized moves in either direction were mostly limited to companies that reported quarterly results. Occidental Petroleum (OXY 50.99, +2.15, +4.4%) and Devon Energy (DVN 37.57, +2.69, +7.7%) were standouts in that regard, boosting the energy sector (+0.7%).
On the flip side, Celanese (CE 54.91, -15.00, -21.5%) and Toll Brothers (TOL 114.88, -7.17, -5.9%) logged big gains in response to disappointing results.
Market participants were digesting more talk about tariffs, but took it in stride due to a view that tariffs are more of a bargaining chip than a permanent feature. President Trump said the auto tariff rate will be in the neighborhood of 25% starting April 2, and that he is also considering tariffs for pharmaceuticals and semiconductors.
The market also received the Minutes from the January 28-29 FOMC meeting, which didn't contain any surprises.
The 10-yr yield settled one basis point lower at 4.54% and the 2-yr yield settled three basis points lower at 4.27%.
- Dow Jones Industrial Average: +4.9% YTD
- S&P 500: +4.5% YTD
- Nasdaq Composite: +3.9%
- S&P Midcap 400: +2.8% YTD
- Russell 2000: +2.4% YTD
Reviewing today's economic data:
- January housing starts declined 9.8% month-over-month to a seasonally adjusted annual rate of 1.366 million (Briefing.com consensus 1.400 million) from an upwardly revised 1.515 million (from 1.499 million) in December. Building permits rose 0.1% to a seasonally adjusted annual rate of 1.483 million (Briefing.com consensus 1.450 million) from a downwardly revised 1.482 million (from 1.483 million) in December.
- The key takeaway from the report is that there was no growth in starts or permits for single-family housing units, which will contribute to ongoing affordability constraints in the existing home market, which is short on inventory. Single-unit starts were down 8.4% month-over-month while single-unit permits were flat.
- The weekly MBA Mortgage Index was down 6.6% after increasing 2.3% a week ago. The Purchase Index was down 5.9% while the Refinance Index fell 7.3%.
Looking ahead to Thursday, market participants receive the following data:
- 8:30 ET: February Philadelphia Fed Survey (Briefing.com consensus 20.5; prior 44.3), weekly Initial Claims (Briefing.com consensus 217,000; prior 213,000), and Continuing Claims (prior 1.850 mln)
- 10:30 ET: Weekly natural gas inventories (prior -100 bcf)
- 11:00 ET: Weekly natural gas inventories (prior +4.07 mln)
Treasuries settle with gains
19-Feb-25 15:35 ET
Dow +43.56 at 44599.90, Nasdaq +11.97 at 20053.23, S&P +13.10 at 6142.68
[BRIEFING.COM] The S&P 500 looks poised to close at a fresh record high for the second session in a row.
Separately, the 10-yr yield settled one basis point lower at 4.54% and the 2-yr yield settled three basis points lower at 4.27%.
Looking ahead to Thursday, market participants receive the following data:
- 8:30 ET: February Philadelphia Fed Survey (Briefing.com consensus 20.5; prior 44.3), weekly Initial Claims (Briefing.com consensus 217,000; prior 213,000), and Continuing Claims (prior 1.850 mln)
- 10:30 ET: Weekly natural gas inventories (prior -100 bcf)
- 11:00 ET: Weekly natural gas inventories (prior +4.07 mln)
CVNA, CF trade up ahead of earnings; TOST, NDSN trade lower
19-Feb-25 15:05 ET
Dow +7.76 at 44564.10, Nasdaq +44.20 at 20085.46, S&P +14.75 at 6144.33
[BRIEFING.COM] There hasn't been much up or down movement at the index level in recent action.
Many stocks have participated in recent upside moves. The Invesco S&P 500 Equal Weight ETF (RSP) shows a 0.2% gain.
Carvana (CVNA 287.28, +2.75, +1.0%) and CF Industries (CF 83.69, +0.47, +0.6%) are among the names trading higher before reporting earnings this afternoon. Toast (TOST 40.26, -1.64, -3.9%) and Nordson (NDSN 217.58, -1.94, -0.9%) show losses ahead of their earnings reports.
FOMC Minutes garner muted response
19-Feb-25 14:35 ET
Dow +2.30 at 44558.64, Nasdaq +41.54 at 20082.80, S&P +14.56 at 6144.14
[BRIEFING.COM] The major indices are at session highs as participants react to the Minutes from the January 28-29 FOMC meeting.
The minutes didn't contain anything too surprising. Committee members "commented that month-over-month inflation readings in November and December had exhibited notable progress toward the Committee's goal of price stability, including in some key subcategories. Many participants, however, emphasized that additional evidence of continued disinflation would be needed to support the view that inflation was returning sustainably to 2 percent."
Treasury yields moved lower after the minutes were released. The 10-yr yield moved to 4.54% from 4.56%.
A look at the Dow
19-Feb-25 14:05 ET
Dow -135.51 at 44420.83, Nasdaq +0.40 at 20041.66, S&P +2.98 at 6132.56
[BRIEFING.COM] Today is a day where the Dow Jones Industrial Average (-0.3%) is trailing the Nasdaq Composite (flat) and S&P 500 (+0.1%). The underperformance isn't stark by any means for the price-weighted average, which is up 4.4% year-to-date, including today's move.
It is a split picture in the Dow at the moment with 15 components up and 15 components down.
UnitedHealth Group (UNH 501.61, +0.88, +0.2%), one of the higher-priced Dow components, is up modestly following a CNBC report that its UnitedHealthcare unit is offering buyouts to certain employees in its benefits operations department as it aims to cut costs, but could resort to layoffs if not enough employees accept the buyout plan.
Microsoft (MSFT 411.87, +2.23, +0.5%) is another high-priced component helping to offset losses in other components, having gotten a boost from the announcement that it developed the world's first quantum computing chip, Majorana 1, using Topological Core architecture.
Goldman Sachs (GS 666.94, -5.25, -0.8%), Home Depot (HD 394.80, -8.51, -2.1%), and Caterpillar (CAT 350.70, -3.30, -0.9%) are among the biggest drags.
Etsy sent lower on a Q4 revenue miss, light Q1 GMS guidance (ETSY)
Etsy (ETSY -8%) is sent back toward 2025 lows today following a Q4 revenue miss and deflating forward-looking comments. The e-commerce company expects Q1 consolidated gross merchandise sales (GMS) to decline at a similar rate to its yr/yr performance in Q4, which was a 6.8% drop. Another quarter of yr/yr GMS compression remains frustrating to investors. Etsy has not posted a yr/yr improvement since 3Q23, with its declines only steepening.
Etsy's woes branch from consumers shifting their tastes toward low prices and fast delivery, benefiting titans like Amazon (AMZN) and Walmart (WMT). While not an apples-to-apples comparison, Etsy's headwinds have been more pronounced compared to e-commerce peer eBay (EBAY). The central issue tugging at Etsy and not at eBay is that Etsy's platform hosts primarily highly discretionary products, including handmade, vintage, and obscure goods. Conversely, eBay has benefited from its Focused Categories, such as trading cards, watches, automotive parts, and consumer electronics. Given the cumulative inflationary pressures over the past few years, consumers' tightened budgets are not prioritizing items on Etsy.
- To contend with these challenges, Etsy is focusing less on near-term consumer conversion and more on creating a better customer experience where its app is a place for discovery. This shift has dented GMS; Etsy estimates the opportunity cost was around a few hundred million dollars in FY24. However, management believes this is the proper step toward building an improved foundation for the long term.
- Etsy began this transformation last year by dialing up what separates it from other e-commerce companies. Etsy is showcasing its over 100 mln unique goods, introducing a quality score by adding indicators of high-caliber listings into its search algorithms, such as positive reviews and on-time shipping. Thus far, this is incentivizing sellers to enhance their customer experiences.
- At the same time, Etsy is enhancing its gifting offering. The company noted that gifting has been core to the platform, ingrained within its discovery flow. During 2025, the company will begin highlighting key gifting moments to drive engagement. Etsy is also placing more emphasis on marketing and bolstering its loyalty program, which offers free shipping.
- Etsy's actions have yet to translate into material gains. In Q4, Etsy posted revenue of $852.16 mln, a meager 1.2% increase yr/yr. Adjusted EPS was a bright spot, jumping significantly to $1.03, exceeding analyst estimates for the first time since 2Q23. Nevertheless, it was insufficient to outshine the cloudy demand dynamics.
Etsy is amid many moving pieces to better contend with an end consumer preferring cheap goods delivered quickly that might linger for an extended period. As such, 2025 is shaping up to be a transition year for Etsy. Against this backdrop, the company must begin stabilizing its sliding GMS growth and deliver notable improvements over the next few quarters to reinstate investor confidence and provide a much-needed jolt to the stock.
Toll Brothers' incentives take a toll on margins as high mortgage rates frustrate homebuilders (TOL)
Persistently high mortgage rates and inflationary pressures have left the homebuilding industry on shaky ground. Against this challenging backdrop, luxury homebuilder Toll Brothers (TOL) delivered disappointing 1Q25 results and issued soft 2Q25 deliveries guidance of 2,500-2,700 units, commenting that the key spring selling season is off to a mixed start. On a brighter note, the company has seen a modest pickup in sales activity over the past week. However, that anecdote from CEO Douglas Yearley wasn't enough to reassure nervous shareholders who are becoming increasing concerned that a deeper downturn in the new home construction market may be brewing.
- As a high-end homebuilder, TOL is relatively more insulated from the effects of higher mortgage rates -- about 26% of its buyers pay all cash -- but this issue has increasingly become a problem for the company. Affordability constraints are causing a ripple effect across the market, causing homebuilders to match each other's incentives and offers. In turn, this is putting downward pressure on homebuilding margins and profits.
- In Q1, TOL's adjusted home sales gross margin slipped by 200 bps yr/yr to 26.9%, although that figure did beat its guidance of 26.25%. The decline in margins was partly responsible for EPS falling by 22% yr/yr to $1.75, but impairment charges totaling $22.6 mln were also to blame. In fact, Mr. Yearley stated that its core homebuilding operations were in-line with expectations.
- Deliveries increased 3% to 1,991, which is towards the lower end of its guidance range of 1,900-2,100 units. The bigger issue, though, is TOL's Q2 deliveries guidance of 2,500-2,700 units, equating to a projected yr/yr decline of about 1.5% at the midpoint of the range. The outlook was also below analysts' expectations, signaling that the crucial spring season may fall flat this year.
- Tariffs are adding another layer of uncertainty to the market, creating some concern that higher building materials prices will further pressure margins. With that said, TOL has not experienced any immediate impacts from tariffs up to this point, and the company did reaffirm its FY25 adjusted home sales gross margin guidance of 27.25%.
- Lastly, TOL continues to hold a bullish view on the long-term outlook for the new home market -- particularly for the luxury and move-up niches. Positive factors working in its favor include favorable demographics, the chronic undersupply of available homes in the U.S., and the accumulated wealth built up from home price appreciation and stock market gains.
The main takeaway is that high mortgage rates are dampening the spring season for the new home construction market and TOL is not completely immune to these headwinds. The implementation of tariffs could squeeze margins and profits even harder, casting another cloud over the homebuilder industry.
Analog Devices builds on its current upward momentum following improving demand in Q1 (ADI)
Analog Devices (ADI +5%) gaps higher today after exceeding analysts' top and bottom-line forecasts in Q1 (Jan) and projecting uplifting Q2 (Apr) numbers. The signal processing and power management chip maker also raised its dividend by 8% and increased its repurchase plan by $10.0 bln, bringing the total to $11.5 bln or around 10% of its market cap.
Echoing comments from last quarter, ADI mentioned that inventory levels have largely normalized, and its customer relationships have enabled it to maintain a healthy balance of supply and demand. Management still warned that the dynamic macroeconomic backdrop remains the primary influence on the pace of ADI's recovery. However, thus far, the signals the company monitors, such as inventories and bookings, have improved over the past 18 months, reaffirming its view that it has already endured the cyclical trough.
- Positive signals were displayed in Q1, evidenced immediately by another quarter of narrowing yr/yr net revenue compression. In Q1, ADI posted revs of $2.42 bln, a 3.6% decline yr/yr, marking a further improvement over the -10.1%, -24.8%, and -33.8% drops experienced over the past three quarters.
- During the current semiconductor cycle, ADI has been strengthening its customer ties and accelerating its pipeline growth. For instance, a shift toward modular manufacturing in industrial automation has spurred significant growth in software-defined connectivity, benefiting ADI's software-configurable products that reduce power consumption dramatically. Meanwhile, the surge in AI-related demand has considerably increased ADI's power content.
- AI, automation, and other technologies across the automotive and consumer wearables landscape are fortifying ADI's confidence in long-term growth. Management mentioned that in light of increased hyperscaler CapEx, with the likes of Amazon (AMZN), Meta Platforms (META), and Google (GOOG) allocating tens of billions of dollars toward AI infrastructure, ADI anticipates its 2025 memory and high-performance revenue to enjoy robust growth.
- ADI also sees several tailwinds across multiple verticals. For instance, the company was excited about the growing demand in the surgical robotics market, which requires increased content levels across ADI's portfolio. Similarly, as the automotive industry grows more electrified and more advanced driver assistance systems are implemented, ADI is well-positioned to capitalize.
- While economic conditions have not entirely returned to full strength, ADI expects further improvements over the near term. The company projected Q2 EPS of $1.58-1.78 and revenue of $2.40-2.60 bln, a roughly 16% jump at the midpoint, representing a long-awaited return to positive yr/yr growth.
ADI's Q1 report was precisely what investors wanted to see to continue pushing the stock higher. Since hitting six-month lows last week, shares have now climbed by over +10%. There was plenty to cheer about in the quarter, from an aggressive plan to return shareholder value to further notable improvements in demand, inching closer to a full recovery. While economic uncertainties will still loom over the near term, unless any obvious setbacks unravel to stunt ADI's current upward recovery progress, the company is poised to maintain its upbeat momentum.
Shift4 Payments shifting into low gear on Q4; investors skeptical about Global Blue deal (FOUR)
Shift4 Payments (FOUR -18%) is shifting lower today following its Q4 report last night. Shares of this payments processor are lower despite strong EPS upside and in-line revs. The main issue is that the FY25 revenue guidance was a bit light. Also, the company announced a pretty substantial acquisition. Shift4 will acquire Global Blue (GB) for $7.50 per share in cash, a 15% premium to Tuesday's close. We think this deal is the main reason for today's pullback.
- Starting with the Q4 results, FOUR described them as reasonably strong. They represented records across all major KPIs (key performance indicators), including end-to-end volumes, gross revenue less network fees, adjusted EBITDA, and especially adjusted free cash flow. End-to-end payment volumes increased 49% yr/yr to $47.9 bln. We did not get a lot of color on the soft FY25 revenue guidance, but FOUR did say that Q1 is shaping up in-line with expectations for volume and revenue.
- The company also expanded into new geographies and secured significant wins in Q4, including the 18 Alterra Mountain Company resorts alongside ticketing for the iconic IKON Pass (multi-resort ski passes). FOUR also renewed its deal with the Great Wolf Lodge, and it signed ticketing deals with the NY Yankees and Dallas Mavericks. It also signed agreements with the Portland Trailblazers and Arizona Diamondbacks.
- Turning to the Global Blue deal, the company is a market-leading payment platform. It does payments, tax refunds, and dynamic currency conversion. GB operates a true two-sided network serving over 75,000 luxury retailers and over 15 mln affluent consumers through a proprietary app. Shift4 has a large presence in the US and an expanding international footprint, while Global Blue operates across 52 countries in Europe, APAC and Latin America. The deal is set to close in Q3.
- The merchants they serve include names like LVMH, Prada, Bottega Veneta, Fendi, and many others. FOUR says the deal represents a $500+ bln payment cross-sell opportunity and its geographic footprint will accelerate FOUR's efforts in bringing its restaurant, hotel, and sports & entertainment products to new markets. FOUR says its cross-sell funnel expansion is $800+ bln today, and with this transaction, its total cross-sell funnel increases to over $1.4 trillion.
- Global Blue is the largest acquisition in FOUR's history at $2.5 bln, all in cash. The deal will be financed with existing cash on hand and proceeds from a $1.8 bln short-term bridge financing that will be replaced with long-term debt and convertible financing.
While the FY25 guidance was a bit light, we think the main reason for the sell-off today are concerns about the Global Blue deal. Its shares have not performed well and it is FOUR's largest purchase ever, so there is risk here. FOUR counters that, like many of its past deals, Global Blue has been overlooked and undervalued. FOUR does not see it as a broken business. FOUR also noted that the deal will fuel its geographic expansion plans. However, for now, investors are skeptical that it's a good fit and that FOUR is paying too much and taking on too much debt to finance the deal.
Baidu's sluggish advertising business clouding over its fast-growing AI Cloud products (BIDU)
Chinese internet giant Baidu.com (BIDU) surpassed analysts' muted 4Q24 expectations, but that wasn't enough to stave off a sharp selloff in the stock as the company's bread-and-butter online advertising business continues to struggle under tough macroeconomic conditions. Furthermore, while BIDU's AI Cloud business generated solid revenue growth of 26%, concerns are mounting that its GenAI chatbot called "ERNIE" could lose momentum following the launch of DeepSeek's chatbot last month.
- Despite the strong growth in the AI Cloud business, Baidu Core revenue still fell by 7% yr/yr to RMB 17.9 bln, reflecting macro-related pressures and rising competition in the social media space. BIDU has been banking on its ERNIE chatbot to provide its advertising business with a competitive edge and revenue boost, but that hasn't played out in a substantial way just yet. The fact that a high percentage of BIDU's advertising customers are smaller, offline businesses doesn't help its cause.
- The emergence of DeepSeek has created another major challenge for BIDU, especially since its open source, causing BIDU to reverse its original plan of charging a fee to use ERNIE. Starting on April 1, BIDU will offer the ERNIE chatbot for free on both desktop and mobile phone platforms.
- These headwinds in BIDU's advertising business, which accounts for over half of the company's total revenue, are also impacting its margins and profits. Adjusted EBITDA margin decreased by six percentage points on qtr/qtr basis to 20%, and adjusted EPS dipped by 12% to RMB 19.18. During this rough stretch that includes three consecutive quarters of yr/yr revenue declines, BIDU hasn't let up in terms of investing in AI and autonomous driving technology. In Q4, capex came in at RMB 2.33 bln compared to RMB 1.65 bln last quarter.
- On the topic of autonomous driving, BIDU is seeing good momentum with its Apollo Go ride-hailing service. For Q4, Apollo Go provided over 1.1 mln rides, up 36% yr/yr, and strong growth should continue after BIDU secured permits to conduct autonomous driving tests in Hong Kong last November.
BIDU's sluggish online advertising business is clouding over the stronger growth of its AI Cloud business, which did have a strong quarter. However, concerns are mounting that DeepSeek and other emerging chatbots will derail BIDU's ambitious AI growth aspirations.
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