Market Snapshot
| Dow | 43621.16 | +159.95 | (0.37%) | | Nasdaq | 19026.39 | -260.54 | (-1.35%) | | SP 500 | 5955.25 | -28.00 | (-0.47%) | | 10-yr Note |
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| | NYSE | Adv 1636 | Dec 1154 | Vol 1.14 bln | | Nasdaq | Adv 1765 | Dec 2652 | Vol 8.00 bln |
Industry Watch
| Strong: Consumer Staples, Real Estate, Health Care, Materials, Industrials |
| | Weak: Information Technology, Communication Services, Consumer Discretionary, Energy |
Moving the Market
--Weakness in mega-cap space
--Festering growth concerns
--Weaker than expected Consumer Confidence report for February
| Closing Stock Market Summary
25-Feb-25 16:15 ET
Dow +159.95 at 43621.16, Nasdaq -260.54 at 19026.39, S&P -28.00 at 5955.25
[BRIEFING.COM] There were troubles for the stock market at today's open. The mega-cap stocks headed south and carried the major indices with them at the start. Things worsened, though, at 10:00 a.m. ET with the release of the February Consumer Confidence Index. That report, which featured a drop in the index from 105.3 to 98.3 (the largest monthly decline since August 2021) and a surge in average 12-month inflation expectations from 5.2% to 6.0%, sent the indices cascading to their lows for the day.
Treasuries, meanwhile, rallied on the news in a safe-haven trade that was further supported by tariff angst, growth concerns, and diplomatic tension as reports indicated the Trump administration is looking at tightening restrictions on chip exports to China. The latter report sent the Philadelphia Semiconductor Index 2.2% lower.
A $70 billion 5-yr note auction, which was met with strong demand, fortified the Treasury market's position and its fifth straight winning session. The 2-yr note yield dropped seven basis points to 4.10% and the 10-yr note yield fell 10 basis points to 4.30%.
The lower yields, however, didn't ignite the stock market, which was held back all day by relative weakness in the mega-cap cohort. Tesla (TSLA 302.80, -31.67, -9.6%) was the biggest loser of the bunch, falling sharply on heavier-than-average volume that was catalyzed by an unwinding of momentum positions and an FT report that indicated Tesla's Europe sales were down 45% year-over-year in January.
The Vanguard Mega-Cap Growth ETF (MGK) was down as much as 2.1% at its low, but ended the session down 1.2%.
Notwithstanding the weakness in the widely-held mega-cap stocks, the broader market fared better on a comparative basis. The Russell 2000 (-0.4%) fought back from a larger 1.1% decline, the S&P Midcap 400 (flat) neutralized an early 0.8% loss, and the equal-weighted S&P 500 advanced 0.1%.
Dow component Home Depot (HD 393.24, +10.82, +2.8%) provided some relief in the wake of its better-than-feared earnings report; Eli Lilly (LLY 902.36, +21.16, +2.4%) offered some support after announcing additional Zepbound vial doses at lower costs; and real estate/housing-related stocks saw some uplift on the drop in interest rates, the response to Home Depot's earnings report, and other sector earnings results.
Their aggregate strength, however, was not enough to prevent the market cap-weighted S&P 500 from suffering its fourth straight loss.
The predominately defensive disposition of today's session was reflected in the outperformance of the consumer staples (+1.7%) and health care (+0.9%) sectors, the flight-to-safety in Treasuries, and the uptick in the CBOE Volatility Index (19.79, +0.81, +4.3%), which traded as high as 21.48.
The communication services (-1.5%), energy (-1.5%), information technology (-1.4%), and consumer discretionary (-0.8%) sectors were today's biggest losers.
- DJIA: +2.5% YTD
- S&P 500: +1.3% YTD
- S&P Midcap 400: -0.8% YTD
- Nasdaq Composite: -1.5% YTD
- Russell 2000: -2.7% YTD
Reviewing today's economic data:
- The Conference Board's Consumer Confidence Index dropped to 98.3 in February (Briefing.com consensus 103.1) from an upwardly revised 105.3 (from 104.1) in January. This was the largest monthly decline since August 2021.
- The key takeaway from the report is that the drop in confidence was seen across all age groups with worries about tariffs, inflation, and future employment prospects driving the decline.
- December FHFA Housing Price Index (actual 0.4%; prior revised to 0.4% from 0.3%)
- December S&P Case-Shiller Home Price Index (actual 4.5%; Briefing.com consensus 4.4%; prior 4.3%)
The fate of a losing streak hangs in the balance
25-Feb-25 15:30 ET
Dow +300.89 at 43762.10, Nasdaq -158.96 at 19127.97, S&P -5.48 at 5977.77
[BRIEFING.COM] US Treasuries had a fifth consecutive wining session today that saw prices move higher and yields lower. The S&P 500 and Nasdaq Composite are trying to avoid their fourth consecutive losing session while the Russell 2000 is hoping to avert a fifth straight losing session.
They all have work to do in the next 30 minutes or so to avoid those fates. The S&P 500 (-0.1%) and Russell 2000 (-0.1%) are on a good trajectory at the moment, having recovered nicely off session lows, yet the Nasdaq has a bigger fight on its hands.
That fight will have a lot to do with how the mega-cap stocks end today's session. They are working their way back from larger losses in what has been a mostly negative day of trading. The Vanguard Mega-Cap Growth ETF (MGK), down 2.1% at today's low, is down 0.6% now.
Conviction lacking
25-Feb-25 14:55 ET
Dow +192.96 at 43654.17, Nasdaq -203.49 at 19083.44, S&P -16.10 at 5967.15
[BRIEFING.COM] It has been an uneventful afternoon trade for the most part, yet we suspect participants are on watch for some late-day gyrations, especially after how yesterday's session ended.
That doesn't mean the gyrations will only have negative connotations. There could just as easily be a late spike as there is a late dunk. For the time being, though, the indices are still respecting sideways trading patterns as neither buyers nor sellers are exhibiting much conviction.
The consumer staples sector (+1.4%) has been a winning standout throughout today's session. The same goes for the real estate sector (+1.4%), which is up following earnings reports from American Tower (AMT 203.94, +11.94, +6.2%) and SBA Communications (SBAC 218.27, +5.43, +2.6%), and as interest comes down.
Nasdaq in underperformance role
25-Feb-25 14:30 ET
Dow +25.33 at 43486.54, Nasdaq -272.47 at 19014.46, S&P -38.40 at 5944.85
[BRIEFING.COM] In our last update we highlighted the outperformance of the Dow Jones Industrial Average today. We'll flip the script now and highlight the Nasdaq Composite's underperformance today.
The latter is owed in large part to the underperformance of the mega-cap stocks, yet it goes beyond that as breadth figures suggest. Decliners lead advancers at the Nasdaq by a roughly 7-to-4 margin.
The Nasdaq's weakness might be governed by the mega-cap stocks, yet the broader unwinding of the momentum trade persists as an index driver, too.
Semiconductor stocks comprise another influential pocket of weakness weighing on the Nasdaq. The Philadelphia Semiconductor Index is down 2.2% and back close to its lows for the session, dealing with reports that the Trump administration is looking at tightening restrictions on chip exports to China.
In other political news, FT is reporting that Ukraine has agreed to a deal with the United States regarding joint development of its mineral resources.
A look at the DJIA
25-Feb-25 14:00 ET
Dow +129.73 at 43590.94, Nasdaq -214.64 at 19072.29, S&P -23.03 at 5960.22
[BRIEFING.COM] It is largely more of the same of the major indices, which is to say the Dow Jones Industrial Average continues to separate itself from the pack by holding a position in positive territory.
Home Depot (HD 397.57, +15.15, +4.0%), which reported quarterly results before the open, is the biggest mover today -- both in terms of price and percentage moves. Its competitive peer, Lowe's (LOW 243.40, +6.32, +2.7%), will report its results before Wednesday's open.
Sherwin-Williams (SHW 353.42, +9.55, +2.8%) is piggybacking off the response to Home Depot, and is also helping to contribute to the Dow's outperformance along with Walmart (WMT 97.16, +3.49, +3.7%), Amgen (AMGN 315.63, +5.91, +1.9%), Travelers (TRV 252.98, +4.74, +1.9%), and Cisco (CSCO 64.21, +0.97, +1.5%) to name a few others.
The Lowe's report should understandably draw some added attention on Wednesday, yet it is the report after Wednesday's close from Dow component NVIDIA (NVDA 128.03, -2.22, -1.7%) that will have the market's undivided attention.
Krispy Kreme shares getting creamed as cybersecurity incident hits Q4 results and outlook (DNUT)
Krispy Kreme (DNUT) is getting creamed and is trading at all-time lows after the donut maker fell short of Q4 top and bottom-line estimates and guided FY25 EPS and revenue well below expectations as the company continues to recover from a destructive cybersecurity incident. That incident, which struck at a critical time in late November when DNUT was launching new holiday-themed donuts, shaved about $11.0 mln off of the company's Q4 sales and about $10.0 mln off adjusted EBITDA. While DNUT's systems have since been fully restored, the impact from the event is not yet in the rearview mirror as it expects to incur more costs in FY25 due to operational inefficiencies and fees for cybersecurity experts.
Making matters worse, sluggish consumer spending trends are persisting and are also weighing on DNUT's outlook. The company is still expecting to generate positive revenue growth in FY25, bolstered by the expansion of its DFD (delivered fresh daily) network, especially at national partners like McDonald's (MCD), Target (TGT), and Kroger (KR). The issue, though, is that it won't be profitable growth as DNUT anticipates margin compression in 1H25 resulting from the cybersecurity incident and long-term business investments
- For the quarter, organic revenue grew by 1.8% despite a 280-bps headwind from lost revenue associated with the cybersecurity incident, which caused disruptions to online ordering systems in parts of the U.S. That growth was driven by a 24.1% increase in Global Points of Access to 17,557, boosted by DNUT's expanding partnership with MCD. Specifically, in Q4, approximately 1,900 MCD restaurants offered DNUT's donuts and just today DNUT launched daily deliveries to about 500 more MCD location in the New York City area.
- Expanding its Global Points of Access is a key pillar of the company's growth strategy. By the end of next year, DNUT plans to deliver to 12,000 MCD restaurants, and it also just completed a pilot program with Costco (COST). To support its network expansion strategy, DNUT also announced this morning that its looking into outsourcing U.S. logistics and that it has met with some national and regional carriers.
- Turning to the international business, organic revenue growth was stronger at 7.8% compared to a 1.2% decline for the U.S., fueled by DNUT's premiumization efforts and a 14% jump in points of access to 648. However, adjusted EBITDA still decreased by nearly 8% to $25.7 mln due to lower volume in the U.K., leading to deleveraging. The company disclosed that it's considering refranchising opportunities in certain international markets as it looks to improve results overseas.
The main takeaway is that the severity of the cybersecurity incident caught investors off-guard, further souring sentiment on a stock that was already weighed down by concerns revolving around soft consumer spending trends.
Home Depot building some nice gains as Q4 comps swing back into positive territory (HD)
High interest rates continued to dampen demand for larger-scale home remodeling projects in 4Q25 for Home Depot (HD), but the remainder of the company's business was relatively healthy, resulting in a top and bottom-line beat. Perhaps the best indicator that conditions are improving for the home improvement retailer is that for the first time in two years it generated positive comparable sales at +0.8%.
While HD issued downside EPS and revenue guidance for FY25, the market appears to be betting that the company is taking an overly conservative approach with its outlook. For instance, HD's comp forecast of approximately +1.0% suggests that the upward trajectory in comp growth will essentially come to a halt, which seems unlikely given the positive trends in both the DIY and Pro businesses.
- In Q4, both DIY and Pro generated positive comps with Pro once again outperforming. HD saw particular strength in categories such as decking, concrete, and gypsum on the Pro side, while appliances, lumber, and building materials were strong in DIY. Encouragingly, big ticket transactions -- or those over $1,000 -- increased by 0.9% yr/yr, showing that consumers are loosening up on their spending. Overall, comp average ticket edged higher by 0.2% in Q4, and comp transactions were up by 0.6%.
- HD also believes that it's attaining a higher wallet share in the home improvement retail market, driven by its best-in-class interconnected shopping experience. For instance, the company noted that its delivery speeds are the fastest they have ever been, and that its in-store investments, including in technology and inventory, are providing it with key competitive advantages.
- Meanwhile, the Pro business is benefiting from last June's acquisition of SRS Distribution, which sells specialty supplies and materials to roofing, landscaping, and pool installation professionals. With the acquisition, HD has gained access to nearly every market with roofing products. For the first seven months under HD's ownership, SRS contributed $6.4 bln in sales and for FY25, HD continues to expect SRS to grow organic sales by mid-single-digits.
- The one main weak spot remains large discretionary projects that typically require financing, such as kitchen and bath remodels. Unfortunately, HD is anticipating ongoing pressure in this category due to the high-interest rate environment likely persisting in 2025.
HD isn't firing on all cylinders at this point as high interest rates continue to keep a lid on the housing market and larger remodeling projects, but its business is quite healthy otherwise. Sales trends in both the DIY and Pro businesses are pointing in the right direction, setting the stage for improved results this year, despite the ongoing interest rate headwinds.
Zoom Communications sells off on soft Q1 and FY25 revenue forecasts; remains focused on AI (ZM)
Zoom Communications (ZM -8%) slides toward four-month lows today despite exceeding Q4 (Jan) earnings estimates and projecting Q1 (Apr) and FY26 adjusted EPS in-line with consensus. Weaker-than-anticipated revenue forecasts for the upcoming quarter and FY26 have investors racing to exit their positions as the pandemic darling continues to face nagging macroeconomic and structural headwinds.
Alongside a shaky economic backdrop, as businesses rein in spending, the Trump administration has been insistent about federal employees returning to the office, shrinking the pool of potential video conferencing customers. CEO Eric Yuan did not express concern over a broader return-to-the-office trend during the call, referencing Zoom's several additional tools since the pandemic to compete in a world that likely would revert to in-office work.
- Zoom AI Companion is an exciting offering ZM has added to its arsenal, posting accelerating monthly active user growth in Q4, surging by 68% sequentially. ZM noted that Zoom AI Companion has become the driving force behind its transformation into an AI-first company, touting advanced agentic capabilities and integration with Microsoft (MSFT) and Google (GOOG) services. ZM is also launching Custom AI Companion add-ons in April that will be able to automate workplace tasks through custom AI agents, molding to a customer's needs.
- ZM also boasts a portfolio of workplace tools, including Zoom Phone, Team Chat, Events, Docs, Whiteboard, and Rooms, a factor in the company's big win with Amazon (AMZN) during the quarter. ZM's total Enterprise revenue grew around 6% yr/yr, outpacing consolidated growth of 3.3% to $1.18 bln and comprising 60% of its total sales. In its Enterprise business, ZM posted a 7% jump in customers contributing over $100K in TTM revenue.
- Meanwhile, although non-GAAP gross margins ticked slightly lower yr/yr to 78.8%, it was largely due to ZM's strategic investments in AI. Furthermore, ZM reiterated its goal of reaching 80% margins over the long term. Non-GAAP operating margins ticked 81 bps higher yr/yr to 39.5%, supporting ZM's double-digit earnings beat in Q4.
- Nevertheless, ZM's revenue forecasts were a letdown. The company expects Q1 revenue of $1.162-1.167 bln, representing a slight step down from Q4, and FY25 revenue of $4.785-4.795 bln, a 2.7% improvement yr/yr at the midpoint, mostly unchanged from the 3.1% increase in FY25. While ZM has not registered sales compression since delivering quarters of over +350% growth during the pandemic, its incredible rise during 2020 pulled a substantial sum of revenue forward, keeping growth at an amble pace.
ZM has been investing in the proper tools, from Zoom Rooms for larger-sized conferencing to Whiteboard for team collaboration, to help differentiate itself from a pure video conferencing company. We like its strategy of leveraging AI as a customized tool based on a user's needs rather than deploying a one-size-fits-all offering. However, investors are growing impatient with ZM's meager growth, particularly in an age of AI, which has benefited certain tech firms tremendously over the past couple of years. Until ZM can spur more robust demand, its shares may struggle to mount an aggressive rally.
Trex trading flat as it wraps up FY24; in good inventory position heading into spring (TREX)
Trex (TREX) is trading roughly flat higher following its Q4 earnings report last night. This supplier of wood-alternative decking and railing reported strong EPS upside. Revenue fell 14.4% yr/yr to $167.6 mln, but that was better than expected. Importantly, Trex guided Q1 revenue above analyst expectations, which is important as it starts to prepare for the spring/summer season, when many people decide to renovate their decks.
- We are not overly concerned about the Q4 revenue decline because this is Trex's seasonally slowest quarter of the year. Also, channel inventories decreased by $45 mln, which is almost double what Trex had originally forecasted as distributors worked down current inventory levels. Notably, Trex revised its channel inventory strategy in 2H24 to reduce its quarterly volatility related to channel stocking and destocking. The goal was to minimize production fluctuations within its manufacturing plants, but that did result in a revenue decline in Q4.
- Trex continues to see positive Residential sell-through growth, strong contractor backlogs, and favorable customer surveys. All of this suggests optimism heading into 2025. Trex is also excited about capacity expansion that will come online soon. It's building a plant in Little Rock, Arkansas that is on schedule to start pellet production in Q2. Once the initial startup expenses are behind it, this facility will be Trex's most efficient plant.
- Trex is enjoying strong demand for its premium-priced products and sequentially stable demand for its entry-level products. Trex has been seeing particular success with its premium decking called Transcend Lineage, which features heat-mitigating technology, now branded SunComfortable. It reflects UV rays and heat to keep decks feeling cooler. Heat-mitigation attributes are becoming more popular, especially in the Sunbelt where high temps and abundant sun are the norm.
- Railing is another area of focus for Trex. The company accelerated its pace of new product introductions in 2024 with new steel, mesh, and aluminum railing systems; cable and glass systems; and enhancements to its Trex Select and Trex Enhance composite railing systems that are priced to provide an alternative to vinyl railing. Trex now has a comprehensive portfolio of railing products addressing all major design preferences and price points. Trex has a goal of doubling its share of the $3.3 bln railing market over the next five years, moving from 6% to 12% share.
Overall, this was a pretty good way to wrap up 2024. Despite the decline in revenue, the retail-level sell-through and contractor backlogs are solid. The issue is that distributors worked down their inventory levels, which impacts sales in the near term but Trex should benefit from lean channel inventories as we head into the all-important spring/summer selling season. That helps explain the upside guidance for Q1.
Microsoft slips on reports of canceled data center leases; spurs minor AI demand concerns (MSFT)
Microsoft (MSFT -1%) encounters selling pressure today, as shares tag six-month lows, a 10% drop from levels before its Q2 (Dec) earnings report last month, following a TD Cowen report that the tech giant canceled leases for U.S. data center capacity. The report is spurring modest concern among investors today as they question MSFT's move, speculating that it could be due to overcapacity within the AI computing space.
- Today's news is surprising, given MSFT's commentary during its Q2 earnings call last month. At the time, CFO Amy Hood stated that the company would likely be AI capacity constrained in Q3 (Mar) but would balance out to be roughly in line with near-term demand by the end of FY25 due to its sizeable capital investments.
- AI capacity constraints were a common theme among big tech during the current earnings season. Amazon (AMZN) mentioned that AWS could be growing faster if not for some capacity constraints, fueling its significant step-up in CapEx for this year. Meanwhile, Alphabet (GOOG) registered a slight deceleration in Cloud growth in Q4, partly due to capacity constraints. Management noted that it exited 2024 with more demand than it had available capacity, also leading to its increased investment in CapEx for 2025.
- If MSFT's canceled leases result from a reversal in the trend of limited supply, similar reports could begin to unfold across big tech.
- There is the other possibility that because of Microsoft-backed OpenAI's partnership with Oracle (ORCL) as part of the Trump administration's Stargate venture, where Softbank (SFTBY), OpenAI and ORCL are forming a $100 bln joint venture to fund AI infrastructure, OpenAI could be transitioning its workloads to ORCL.
- If this scenario is the underlying cause of MSFT's canceled leases, it would be a much less worrisome development. It also would align with the broader commentary from big tech surrounding an environment ripe with AI demand outstripping the current AI infrastructure.
While MSFT pulling back on converting Statements of Qualification into signed leases is stirring up some volatility today, it seems more likely that it has not so much to do with a sudden decrease in AI demand and is more consistent with OpenAI's partnership with ORCL and SFTBY, whereby OpenAI is moving some of its AI workloads to ORCL's servers. MSFT is still planning on pouring $80 bln into its many investments, including AI and cloud infrastructure, up dramatically from the $56 bln spent in FY24, making the cut to an estimated 200 megawatts of data center power not overly concerning. At the same time, AMZN, GOOG, and Meta Platforms (META) are committed to allocating a combined $240 bln to AI infrastructure. Additionally, Alibaba (BABA) disclosed today that it is investing roughly $53 bln in AI. These considerable sums highlight the unwavering demand for the technology in the U.S. and abroad.
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