Market Snapshot
| Dow | 43406.43 | -214.73 | (-0.49%) | | Nasdaq | 19029.81 | +3.42 | (0.02%) | | SP 500 | 5948.82 | -6.43 | (-0.11%) | | 10-yr Note |
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| | NYSE | Adv 1254 | Dec 1508 | Vol 484 mln | | Nasdaq | Adv 2257 | Dec 2109 | Vol 5.79 bln |
Industry Watch
| Strong: Information Technology, Industrials, Utilities, Materials |
| | Weak: Health Care, Real Estate, Consumer Staples, Energy |
Moving the Market
--Rebound action in mega-cap stocks
--House passes resolution for large reconciliation bill that calls for $4.5 trillion in tax cuts over next decade
--Resistance at 50-day moving average (6,005)
| Losing streak at risk of being extended
26-Feb-25 15:30 ET
Dow -214.73 at 43406.43, Nasdaq +3.42 at 19029.81, S&P -6.43 at 5948.82
[BRIEFING.COM] There needs to be a move to positive territory by the closing bell or the S&P 500 (-0.1%) will be logging its fifth straight loss while the Russell 2000 (-0.1%) will be logging its sixth straight loss.
It didn't look earlier as if that would be today's fate for either, yet an inclination to sell into strength has made it a distinct possibility.
There will be a lot of earnings news after the close, but the report from NVIDIA (NVDA 130.63, +4.00, +3.2%) will be the center of attention. Meanwhile, J.M. Smucker (SJM 108.51, -3.96, -3.5%), Norwegian Cruise Line Holdings (NCLH 24.91, +0.32, +1.3%), and Warner Bros. Discovery (WBD 10.46, -0.23, -2.2%) will be focal points on the earnings front before Thursday's open.
Economic data out tomorrow will include the second estimate for Q4 GDP, the weekly Initial and Continuing Jobless Claims report, January Durable Goods Orders, and January Pending Home Sales.
Breadth weakens as stocks retreat
26-Feb-25 14:55 ET
Dow -157.58 at 43463.58, Nasdaq +9.61 at 19036.00, S&P -2.40 at 5952.85
[BRIEFING.COM] Market internals reflect the shift in tone during the afternoon trade. Earlier, advancers led decliners by a better than 2-to-1 margin at the NYSE, but now decliners hold a nearly 7-to-6 lead over advancers. Breadth is still positive at the Nasdaq, but the lead advancers hold over decliners has shrunk to a roughly 6-to-5 margin versus better than 2-to-1 earlier.
The Vanguard Mega-Cap Growth ETF (MGK) had been up 1.5% at its earlier high. It gave up all of that decline in the afternoon and had been down 0.2% before rebounding to its current level (+0.2%).
This rebound has helped stem the decline in the broader market, which began picking up steam around 12:30 p.m. ET.
The S&P 500 information technology sector (+0.5%) is still today's best-performing sector, but it has relinquished a good portion of the 1.9% gain seen earlier.
Notably, the 10-yr note yield continues to advance in price on what can be attributed to safe-haven positioning and an emerging embrace of growth concerns. The 10-yr note yield is down five basis points to 4.25% today, leaving it down 30 basis points for the month.
In more of a neutral posture
26-Feb-25 14:30 ET
Dow -199.46 at 43421.70, Nasdaq -9.83 at 19016.56, S&P -7.82 at 5947.43
[BRIEFING.COM] There has been an abatement in the selling pressure that dropped each of the indices into negative territory. Overall, they are now little changed from yesterday's close.
The latter is a more even-keeled disposition given (a) the losses seen over the last four sessions, some of which were material for a number of stocks and (b) the specter of NVIDIA's (NVDA 129.77, +3.14, +2.5%) earnings report after the close, which will also be accompanied by the earnings report from Dow component Salesforce (CRM 308.40, +2.52, +0.8%).
The earnings report from NVIDIA is certain to be a market-moving report -- if not the report itself, the reaction to the report. That is why it makes more sense for the stock market to assume more of a neutral posture going into that report.
There is ample time left in the session to change the tone (for better or worse), and the mega-cap stocks -- like yesterday -- will have a guiding hand in that respect.
A disappointing downturn
26-Feb-25 14:05 ET
Dow -239.27 at 43381.89, Nasdaq -4.52 at 19021.87, S&P -10.65 at 5944.60
[BRIEFING.COM] A promising session has devolved into a a disappointment, as the Dow, Nasdaq, and S&P 500 have all fallen into negative territory.
At their highs earlier today, the Dow, Nasdaq, and S&P 500 were up 0.6%, 1.4%, and 0.9%, respectively. The proximate causes for the reversal include:
- Failure to hold above support at the 50-day moving average (6,005)
- Disappointing price action in the mega-cap cohort, which could not sustain a rebound bid
- An Axios report that the White House is ordering agencies to get ready for a large amount of firings
- President Trump reiterating at his Cabinet meeting today that he is not dropping the tariffs on Canada and Mexico, slated to take effect March 4, and that reciprocal tariffs will start to be effective April 2.
A turn lower
26-Feb-25 13:25 ET
Dow -156.26 at 43464.90, Nasdaq +98.19 at 19124.58, S&P +10.31 at 5965.56
[BRIEFING.COM] There has been a turn in the market in the early afternoon trade, and the turn has been lower. Can't blame the $44 billion 7-yr note auction for that either, as it was met with strong demand, just like the 2-yr and 5-yr note auctions were on Monday and Tuesday, respectively.
Today's 7-yr note sale drew a high yield of 4.194%, which stopped through the when-issued yield by nearly a basis point. The bid-to-cover ratio (2.64x) was above average (2.59x) while indirect takedown (66.1%) was a bit below average (71.0%).
The retreat in the stock market was expedited by a pullback in the mega-cap space and the breach it caused at the 50-day moving average (6,005), which had earlier pivoted from resistance to support.
The Vanguard Mega-Cap Growth ETF (MGK), up 1.5% at today's high, is now up just 0.6%.
Instacart (CART)
Fueled by another strong holiday season, grocery delivery company Instacart (CART) drove past Q4 Gross Transaction Volume (GTV) and earnings expectations, but another underwhelming outlook from the company has shares plunging lower. Like last quarter, CART forecasted GTV growth to slow down, projecting growth of 8-10% in Q1, while its Q1 adjusted EBITDA guidance of $220-$230 mln also missed the mark. An expected decline in average order value (AOV) partly due to CART's new $0 delivery fee on $10 minimum baskets, and a seasonal slowdown in higher-margin advertising revenue are set to weigh on profitability this quarter.
- CART's disappointing earnings report stands in contrast DoorDash's (DASH) strong Q4 earnings report from February 11 in which the food delivery company saw orders growth accelerate to 19% while Marketplace GOV rose 21%. Orders for CART increased by 11%, up from 10% in Q3, but transaction revenue growth fell to 10% from 12% last quarter, missing analysts' expectations. The slower transaction revenue growth resulted from investments into affordability initiatives designed to bolster customer engagement -- such as the $0 delivery fee noted above.
- Consumer spending trends and smaller basket sizes were already creating headwinds for AOV, which dipped by 1% in Q4 to $112, and now the new $0 fee on $10 minimum baskets will put more pressure on AOV. The trade-off is that CART expects order growth to accelerate, especially as it expands its partnerships with retailers and partners such as Uber (UBER).
- CART has managed expenses well and that continued in Q4. Specifically, adjusted total operating expenses of $426 mln represented 4.9% of GTV, down 40 bps on a yr/yr basis. This improvement was mainly due to lower R&D related to employee cash/equity elections.
- However, the solid cost management will be partly offset by sequential declines in higher margin advertising revenue in Q1. After growing by 11% to $246 mln in Q3, advertising revenue growth dipped a bit to 10% to $267 mln in Q4. The company continues to invest in its advertising business, introducing new features such as measurement tools for brands, launching new AI-powered landing pages, and offering scaled products like sponsored recipes.
The main takeaway is that CART's promotions, such as the new $0 delivery fee on $10 or greater baskets, and the associated disappointing Q1 adjusted EBITDA guidance, is creating some concern about its ability to keep generating strong profitable growth.
Advance Auto stuck in reverse as downbeat Q1 guidance raises doubts over three-year roadmap (AAP)
Advance Auto (AAP -15%) cannot get itself out of reverse following Q4 results as the economic environment continues to throw wrenches in its turnaround plan. The aftermarket auto part retailer projected downbeat Q1 revenue guidance and another quarter of declining same-store sales growth. AAP has struggled mightily over the past couple of years, especially when stacked against its competition, including AutoZone (AZO) and O'Reilly Automotive (ORLY). Both of these companies warned that the end consumer remains sensitive to the current economic situation, clipping demand for DIY projects and discretionary items, such as performance parts and accessories. Still, AAP's rivals have been able to steer through a lot of the dust clouding near-term demand, illuminated by their stock prices heading over +25% higher in the past year compared to AAP's 25% loss over that same period.
- AAP is currently taking on a comprehensive overhaul, shuttering roughly 700 stores by the middle of this year while accelerating its pace of new store openings. The company hopes its efforts of a more optimized and remodeled footprint will lure customers back from the competition. While the store closings are going to result in a material loss of revenue -- AAP reiterated its previous FY27 revenue outlook of $9.0 bln, consistent with its FY24 total of $9.1 bln -- the company expects a positive low single-digit percentage comp in FY27, an improvement from the -0.7% drop in FY24.
- However, AAP's road ahead is anything but smooth. During Q4, discretionary categories remained pressured, hindering Pro and DIY demand, both of which posted negative comp growth. As a result, total comps in the quarter slid by -1%.
- Still, management noted that it is still in the early stages of stabilization, illuminated by comps improving modestly from a -2.3% drop last quarter. AAP anticipates results will gradually improve as it moves through 2025, evidenced by its FY25 projections, including revenue of $8.4-8.6 bln and comps of +0.5-1.5%, respectively, representing noticeable improvements over Q1 revenue and comp guidance of $2.50 bln and -2%, respectively.
- Throughout 2025, AAP will be focused on a few strategic pillars. For instance, AAP is conducting reviews for front and back room assortment to secure products at better costs. It anticipates savings from lower costs to mount throughout 2025, with a large benefit to be realized in 2H25. AAP is also ensuring it has the proper parts situated closer to the customer to help boost store performance. Meanwhile, AAP is consolidating distribution centers to drive incremental productivity enhancements.
AAP's Q4 report was underwhelming. However, this was mostly expected, given the company finalized its turnaround plan just one quarter ago. Skepticism over the company's ability to achieve its three-year roadmap is likely fueling most of today's selling pressure, especially following downbeat Q1 guidance. Even though AAP is confident that performance will improve as the year progresses, too many uncertainties tied to the economy lie ahead. As such, it may take another quarter or two of clear progress toward AAP's goals before turnaround conviction takes hold among market participants.
Lowe's matches rival Home Depot with a solid earnings report of its own (LOW)
Following in the footsteps of rival Home Depot (HD), which posted better-than-expected Q4 results yesterday morning, Lowe's (LOW) delivered a solid earnings report of its own, beating Q4 EPS and revenue estimates. Buoyed by a strong holiday season and continued momentum in the Pro business, comparable sales swung back into positive territory after two years of declines, coming in at +0.2%. Also similar to HD, the company issued soft FY26 guidance, missing top and bottom-line expectations, but there's a sense that both HD and LOW are taking a conservative approach with their outlooks.
- For the second consecutive quarter, the Pro business achieved high-single-digit comp growth, easily outperforming the consumer DIY business. The company is seeing broad-based growth across its Pro geographies and its greater assortment of products and inventory depth is bolstering the business. In terms of specific categories, roofing, siding, and decking showed particular strength, while larger-scale projects like kitchen and bath remodels remained soft due to the high-interest rate environment.
- Echoing a similar message as HD's executives, LOW stated that the home improvement market remains challenging and that its difficult to predict when lower rates will materialize and provide a lift to the market. However, LOW is optimistic that the record levels of home equity will eventually push some homeowners to tap into that equity, unleashing some pent-up demand for larger projects. Furthermore, other key dynamics, such as rising personal income and the oldest existing housing supply in the country's history, will continue to work in LOW's favor.
- Consumers may still be shying away from large projects that typically require financing, but they are ramping up spending on big-ticket items like appliances, grills, and patio furniture. As such, comparable average ticket increased by 1.5%, offsetting a 1.3% decline in transactions.
- While demand gradually recovers, LOW has also kept a tight lid on costs as it executes its perpetual productivity initiative. In Q4, SG&A expense by about 2% yr/yr to $3.8 bln as productivity improved through new streamlined processes, such as a new freight flow process that LOW has implemented.
Much like HD, LOW is benefitting from a slow-and-steady recovery in the home improvement market, but persistently high interest rates are still creating a roadblock to a more complete turnaround. However, pent-up demand for larger-scale projects and consumer acceptance of a higher-for-longer interest rate environment may eventually help to mitigate these headwinds.
Workday put in the work in Q4, supporting decent gains today; optimistic about AI and DOGE (WDAY)
Workday (WDAY +7%) shares are working overtime today, springing higher following another round of solid top and bottom-line upside in Q4 (Jan). While WDAY's Q1 (Apr) and FY26 guidance for subscription revenue, which comprises over 90% of total annual revenue, indicated further signs of slowing growth, excitement over several AI-related developments and CEO Carl Eschenbach's energetic remarks surrounding the federal government's tilt toward efficiency are mounting, eclipsing growth concerns.
- As many have come to expect from WDAY, given its strong track record, the company surpassed adjusted EPS estimates by double-digits for the tenth consecutive quarter in Q4, expanding its bottom line by 22% yr/yr to $1.92. Underpinning the sizeable earnings beat was WDAY's non-GAAP operating margins swelling by 250 bps yr/yr to 26.4%.
- Revenue growth of 15% yr/yr to $2.21 bln also supported a robust bottom line. Subscription revenue ticked 15.9% higher to $2.04 bln, exceeding WDAYs $2.025 bln forecast. Growth was broad-based, growing similarly across the U.S. and overseas. Encouragingly, despite ongoing macroeconomic headwinds, including inflation and elevated deal scrutiny, in the EMEA region, WDAY noted that its two largest markets in the area, the U.K. and Germany, posted their strongest quarter of FY25.
- AI has been front and center in every conversation WDAY's CEO has with customers, driving increasing AI-related demand during Q4. Mr. Eschenbach commented that companies are looking to move beyond incremental productivity gains, seeking a return on investment that helps drive meaningful growth. Like Q3, WDAY observed 30% of its customer expansions involving at least one of its AI SKUs in Q4, such as Extend Pro, one of its fastest-growing products, with new annual contract value (ACV) more than doubling sequentially.
- WDAY stated that its approach to AI has been integrating the technology into its core offering instead of rushing to charge for early AI-related features. Following its strategy, WDAY now believes AI has evolved to a point necessary to support new monetization opportunities fueling WDAY's long-term growth.
- Looking ahead, WDAY projected Q1 and FY6 subscription revenue growth of +13% and +14%, respectively, representing further slowdowns from Q4 and FY25. However, WDAY is optimistic about the Department of Government Efficiency (DOGE), noting that it has considerable potential to drive efficiency in the government, where WDAY commands a sizeable presence. Last year, WDAY laid the groundwork with a couple of significant wins at the Department of Energy and DIA, providing a springboard in the federal market moving forward.
Uncertainty still lingers across the macroeconomic landscape, keeping businesses on their toes as they scrutinize their budgets. However, WDAY is positioning itself for many long-term opportunities, such as investments in AI and focusing on growing its government-related revenue. This gives it a sturdy foundation to accelerate growth once broader demand conditions turn around.
Intuit bounces back with huge EPS upside, calms nerves about DOGE launching a tax filing app (INTU)
Intuit (INTU +12%) has been on a downward trend since mid-December, but it's posting a nice gain today following its Q2 (Jan) earnings report last night. INTU focuses on small businesses and consumers (QuickBooks, TurboTax, Credit Karma, Mailchimp). Note: INTU recently shut down its Mint offering and said users should migrate to Credit Karma.
- INTU reported a huge EPS beat, its largest of any quarter in the past five years. Revenue grew a healthy 17% yr/yr to $3.96 bln, also ahead of expectations. The Q3 (Apr) guidance was mixed with downside EPS but upside revenue.
- Its largest segment is its Global Business Solutions Group (formerly known as Small Business and Self-Employed Group), which is mostly QuickBooks. GBSG revenue jumped 19% yr/yr to $2.7 bln, including Online Ecosystem revenue being up 21% to $2.0 bln. QuickBooks Online Accounting revenue grew 22%, driven by higher effective prices, customer growth, and mix shift. Intuit continues to prioritize disrupting the mid-market.
- Its Credit Karma segment was a laggard in FY23, but recovered nicely in FY24 and that has continued in FY25 with progressively improving yr/yr revenue growth each quarter: +8% in Q3, +14% in Q4, +29% in Q1 and now +36% in Q2 to $511 mln. Results were driven by strength in credit cards, personal loans, and auto insurance. A bit of a headwind in Q3 is that Intuit will be lapping strong growth in auto insurance that began a year ago.
- Consumer Group segment (TurboTax, both DIY and assisted) revenue grew 3% yr/yr to $509 mln, ahead of guidance for a low single-digit decline. Intuit said it was off to a strong start this tax season and reiterated guidance for segment revs to grow +7-8% in FY25. ProTax Group revenue was down 1% to $272 mln.
- Besides earnings, we think another catalyst pushing the stock today was Intuit's response to a question about DOGE. The concern has been reports that DOGE plans to launch a free tax filing app for consumers. Intuit said on the call that DOGE's focus has been more on reducing waste, fraud and bureaucracy. While not mentioning the tax filing app specifically, Intuit did say it does not see any risk to the IRS providing services to consumers and businesses.
Overall, this was a great quarter for Intuit and puts them in a strong position heading into tax season. The mixed Q3 guidance was a bit of a concern, but investors do not seem overly worried. Also, there has been a lot of negativity priced into this stock on concerns about a free tax filing app from DOGE, but Intuit seems to have calmed some nerves about that on the call.
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