| | | Market Snapshot
| Dow | 43191.24 | -649.67 | (-1.48%) | | Nasdaq | 18350.19 | -497.09 | (-2.64%) | | SP 500 | 5849.72 | -104.78 | (-1.76%) | | 10-yr Note | +4/32 | 4.18 |
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| | NYSE | Adv 823 | Dec 1834 | Vol 1.3 bln | | Nasdaq | Adv 954 | Dec 3454 | Vol 8.2 bln |
Industry Watch
| Strong: Real Estate, Consumer Staples, Health Care |
| | Weak: Technology, Energy, Materials, Consumer Discretionary, Industrials, Communication Services |
Moving the Market
-- President Trump confirming tariffs on Mexico and Canada go into effect tomorrow; adding that China tariffs increase to 20% from 10%
-- Ongoing worries about growth piqued by this morning's economic data, which featured the February ISM Manufacturing PMI
-- Increased buying in Treasuries, building on big gains last week and in February
| Closing Summary
03-Mar-25 16:30 ET
Dow -649.67 at 43191.24, Nasdaq -497.09 at 18350.19, S&P -104.78 at 5849.72
[BRIEFING.COM] The stock market had a rough showing. There was an initial push higher after Friday's pleasing finish, but selling interest kicked in shortly after the open. The Nasdaq Composite fell 2.6%, closing below its 200-day moving average (18,368). The S&P 500 and Dow Jones Industrial Average settled 1.8% and 1.5% lower, respectively.
Losses were relatively muted through most of the session, but selling increased noticeably in the afternoon following President Trump's confirmation that 25% tariffs on Canada and Mexico will begin tomorrow as scheduled. He added that tariffs on China will increase to 20% from 10% tomorrow morning also.
The initial leg lower this morning was driven in part by ongoing concerns about growth. The February ISM Manufacturing PMI was the latest report to play into these concerns, showing a mix of decelerating activity, rising prices, and weakening employment for the manufacturing sector. The Atlanta Fed reduced its Q1 GDP forecast again to -2.5% from -1.5% in response.
The price action in Treasuries was a manifestation of growth concerns. The 10-yr yield, at 4.23% this morning, settled five basis points lower than Friday at 4.18%. The 2-yr yield dropped below 4.00%, settling two basis points lower at 3.98%.
A big decline NVIDIA (NVDA 114.06, -10.86, -8.7%) related to news of a potential tightening of export restrictions on chips for China was another limiting factor today. Other mega caps also logged sizable declines, impacting index performance.
The action in NVDA led the technology sector to close 3.5% lower, along with losses in Microsoft (MSFT 388.49, -8.50, -2.1%) and Apple (AAPL 328.03, -3.81, -1.6%).
Separately, the CBOE Volatility Index spiked to 22.82 today as market participants hedge against further downside risk in the equity market.
- Dow Jones Industrial Average: +1.5% YTD
- S&P 500: -0.5% YTD
- S&P Midcap 400: -3.1% YTD
- Nasdaq Composite: -5.0%
- Russell 2000: -5.7% YTD
Reviewing today's economic data:
- February S&P Global US Manufacturing PMI - Final 52.7; Prior 51.6
- February ISM Manufacturing Index 50.3% (Briefing.com consensus 50.7%); Prior 50.9%
- The key takeaway from the report is that there is a bad mix of decelerating activity, rising prices, and weakening employment for the manufacturing sector. It is the kind of mix that will stir talk of stagflation.
- January Construction Spending -0.2% (Briefing.com consensus 0.0%); Prior 0.5%
- The key takeaway from the report is that the weakness in private residential spending was concentrated in multifamily construction.
Separately, there is no US economic data on tomorrow's calendar.
Stocks extend losses; Nasdaq drops below 200-day MA
03-Mar-25 15:35 ET
Dow -853.56 at 42987.35, Nasdaq -552.56 at 18294.72, S&P -130.32 at 5824.18
[BRIEFING.COM] The major indices continue to hit fresh lows. The Nasdaq Composite trades below its 200-day moving average (18,367).
Just about everything is coming along for the downturn, leading the equal-weighted S&P 500 to trade 1.4% lower versus a 2.2% decline in the market-cap weighted S&P 500.
The CBOE Volatility Index is spiking, up 3.28 or 16.7%, to 22.91 as participants hedge against further downside moves in equities.
Separately, there is no US economic data on tomorrow's calendar.
Stocks, yields move lower
03-Mar-25 15:05 ET
Dow -655.98 at 43184.93, Nasdaq -438.56 at 18408.72, S&P -103.23 at 5851.27
[BRIEFING.COM] Selling increased in equities over the last half hour. The Dow Jones Industrial Average is more than 600 points lower and dropping.
The pickup in selling coincided with President Trump at a press conference saying that 25% tariffs on Canada and Mexico will begin tomorrow as scheduled.
Treasury yields also moved lower. The 10-yr yield is at 4.17% and the 2-yr yield is at 3.98%.
S&P 500 slips as SMCI, APA, and Albemarle weigh on index
03-Mar-25 14:30 ET
Dow -317.18 at 43523.73, Nasdaq -221.23 at 18626.05, S&P -46.09 at 5908.41
[BRIEFING.COM] The S&P 500 (-0.77%) is in second place on Monday afternoon among the major averages.
Briefly, S&P 500 constituents Super Micro Computer (SMCI 37.57, -3.89, -9.38%), APA Corp. (APA 19.32, -1.38, -6.67%), and Albemarle (ALB) pepper the bottom of the average. SMCI slips after a note from JPMorgan suggested the company highlighted material internal control weaknesses, while APA caught a target cut out of Susquehanna.
Meanwhile, Weyerhaeuser (WY 31.55, +1.45, +4.82%) is near the top of the standings despite a dearth of corporate news.
Nasdaq dropping over 1% as gold surges on weaker dollar and geopolitical tensions
03-Mar-25 14:00 ET
Dow -357.44 at 43483.47, Nasdaq -237.94 at 18609.34, S&P -50.87 at 5903.63
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (-1.26%) is the worst-performing major average, down more than 235 points.
Gold futures settled $55.60 higher (+2.0%) to $2,901.10/oz, allowed higher by a nearly -1% loss in the greenback as well as the usual suspects of geopolitical tensions -- the ongoing war in Ukraine, Israel, as well as impending tariffs.
Currently, the U.S. Dollar Index slides just shy of -1% to $106.60.
Microchip up on expanded restructuring actions aimed at reducing its days of inventory (MCHP)
Microchip (MCHP +4%) heads higher today after announcing additional restructuring actions, including reducing its headcount at one of its Fab facilities and updating long-term targets. The semiconductor manufacturer specializing in microcontrollers, which can be found in numerous electronic devices and appliances, has endured a tumultuous past nine months, kickstarted by a considerable sell-off in early August following weak guidance.
To contend with an increasingly unfavorable backdrop, early last month, MCHP outlined a comprehensive restructuring plan, which included the closure of its Tempe Fab (Fab 2) and working on rotating time-off schedules at its Fab 4 and Fab 5. At the same time, MCHP managed capacity in its back-end facilities in Thailand and the Philippines by taking shutdown days and reducing employee hours.
- MCHP's initiatives were largely targeted at reducing its inventory, eyeing 130-150 days from its 266 days of inventory reached during Q3 (Dec), representing another increase from the 247 days at the end of Q2 (Sep).
- Today, MCHP expanded on these actions, noting that it will reduce its headcount at its Fab 4 and Fab 5 facilities as well as its back-end facility in the Philippines. MCHP also stated that it is trimming its workforce across other business units and support groups.
- In connection with the announcement, MCHP updated its long-term revenue, margin, and operating expense goals. For revenue growth, MCHP is targeting long-term revs to be above industry growth, noting that it is challenging to decipher its current baseline. Once inventory normalizes, providing better clarity, MCHP commented that it may be able to give a more detailed revenue growth estimate. MCHP expects 65% and 25% for gross margins and expenses, respectively, improvements from the 55.4% margins and 34.9% OpEx posted in Q3.
While shares have rallied roughly +15% from 52-week lows reached last month, they still trade over 20% below six-month highs. There remains too much uncertainty surrounding when the current downturn will bottom. Many of MCHP's peers are encountering similar unfavorable dynamics, highlighting the pervasiveness of the current cycle. For instance, STMicroelectronics (STM) noted in January that it continued to face a delayed recovery and inventory correction, especially in Europe, leading to a soft Q1 (Mar) forecast. Similarly, Infineon (IFNNY) mentioned last month that macro data has yet to show signs of consistent improvement, hindering the pace of inventory depletion.
MCHP is taking the right steps toward accelerating inventory stabilization and an eventual recovery. However, there is a significant gap between MCHP's current days of inventory and where it wants to be, which could take several quarters to reach. As a result, market participants continue to express hesitation, waiting until MCHP delivers progress toward achieving its inventory goal before displaying more confidence in the stock.
ON Semiconductor may be looking to power growth rate higher with acquisition of Allegro (ON)
In search of a much-needed topline spark following six consecutive quarters of yr/yr revenue declines, ON Semiconductor (ON) is reportedly turning to the M&A market to help turn the tide. According to Bloomberg, ON, a manufacturer of semiconductors for power and sensing applications, is considering an acquisition of competitor Allegro Microsystems (ALGM), sending shares of ALGM rocketing higher.
- The timing of this potential deal is interesting as it comes just one week after ON announced a substantial restructuring initiative that includes a global workforce reduction of approximately 2,400 employees. With ON looking to cut costs and right size the company for current business conditions, making a big M&A splash through a multi-billion-dollar acquisition seems like an unlikely move.
- When ON announced the restructuring plan on February 25, CEO Hassane El-Khoury explained that the company is reducing or eliminating projects that are non-core to the business and that the cuts aren't aimed at R&D. Therefore, the focus isn't so much on cost-cutting as it is on restructuring and prioritizing areas of the business with stronger growth potential.
- On that note, an acquisition of ALGM would substantially expand ON's exposure to the EV and data center markets. Similar to ON, the company produces chips that are used in power, sensing, and motion control systems. At approximately 70% of total revenue, the Automotive end market is by far the largest market for ALGM, which has been slumping amid the high-interest rate environment and the more cost-conscious consumer. Last quarter, ALGM's revenue in the Auto market dove by 33% to $130.1 mln.
- With about half of its revenue coming from the Automotive market, ON is facing the same headwinds as ALGM, as illustrated by its downside Q4 results and soft Q1 EPS and revenue guidance from February 10. Given the current weakness in the EV and auto market, and the looming tariffs that may create another headwind for the industry, it seems fair to question why ON would want to double-down on this business right now.
- We believe that the answer to that question may center on valuation. Shares of ALGM are down by nearly 50% since mid-2023 and are trading with a more reasonable Forward P/E of about 39x. In comparison, ALGM had a forward P/E north of 70x in June of 2024. Furthermore, ALGM's margins are a little higher than ON's at 49.1% versus 45.3%, based on Q4 results. So, while the Bloomberg article didn't mention a potential price tag for a deal, ON is likely looking at the weakness in ALGM's stock as an opportunity to purchase the company at a relative discount.
Overall, we have mixed feelings about this potential deal. On the positive side, ON would become a clear leader in the power and sensing niche within the chip industry, especially in the automotive market. Also, ON may be able to scoop up ALGM at a reasonable price right now. However, doubling down on an automotive end market that seems poised for another tough year, and possibly beyond, could exacerbate ON's current growth slump.
Kroger ticks lower on the resignation of CEO Rodney McMullen following an investigation (KR)
Kroger (KR -1%) faces modest selling pressure today after announcing the resignation of its CEO and Chairman Rodney McMullen, who has been leading the grocery chain since 2014. The resignation followed an investigation of Mr. McMullen's personal conduct. Replacing the CEO on an interim basis will be Lead Director Ron Sargent, who will also serve as Chairman. In connection with the resignation, Kroger expects to achieve FY25 (Jan) identical sales without fuel near the higher end of its previous guidance range of +1.20-1.50%, slightly better than how it was trending quarter-to-date in December, and adjusted EPS slightly above the upper bound of its $4.35-4.45 outlook.
The CEO shakeup occurred on the heels of Kroger terminating its $25 bln planned merger with Albertsons (ACI), which is currently suing Kroger over breaching contract terms, leading to a court ruling blocking the merger. It also happened before Kroger's Q4 report on Thursday morning. With the stock reaching all-time highs last week, these variables could lead to near-term volatility, especially if the company's expected FY26 (Jan) outlook fails to meet expectations.
- Kroger operates in an increasingly competitive environment as cumulation inflationary pressures prompt consumers to be more price-sensitive. While rival Walmart (WMT) issued downbeat FY26 (Jan) forecasts last month, it likely had to do primarily with its discretionary products. Walmart mentioned that grocery remained a standout category during Q4, with comps reaching mid-single-digit growth.
- Walmart also noted that it was capturing market share across categories. Therefore, robust grocery comps could indicate increasing competitive pressures on Kroger. In Q3 (Oct), Kroger's consolidated comps without fuel ticked +2.3% higher, slightly under Walmart's mid-single-digit grocery comps in the same period.
- It is not just Walmart that Kroger needs to be concerned with. Consumers are branching out to more stores to find the best deals, from Costco (COST), which posted mid-single-digit comp growth in NovQ across its food and sundries category, to Amazon (AMZN), which offers unlimited grocery deliveries with a Prime membership. Without the addition of Albertsons, which would have fortified Kroger's footprint given the minor overlap, the company is staring at a landscape where every year will likely grow more competitive than the last.
- A competitive environment can lead to margin pressure as Kroger may need to engage in heightened promotional activity, allocate more resources toward initiatives to stave off competitive pressures, such as its digital channels, or a combination of the two. However, Kroger's private label portfolio, "Our Brands," has helped lift margins over the past several quarters and is expected to keep margins relatively flat yr/yr in Q4.
While a changeup at the CEO position was not what Kroger wanted to deal with following the Albertsons merger termination and ahead of Q4 numbers, the company is dealing with potentially more pernicious effects of increasing competitive pressures. The grocery category has proven to be resilient, given its relative price inelasticity. However, with so many routes for consumers to take to fill their pantries, Kroger must find a way to constantly differentiate itself to keep its shares trending higher.
Surgery Partners trades higher, bouncing back with a nice EPS beat in Q4 (SGRY)
Surgery Partners (SGRY +3%) is trading higher after wrapping up FY24 on a positive note. This operator of surgery centers, where patients can go for procedures outside of a hospital setting, bounced back from an EPS miss in Q3 to report its largest EPS upside in several quarters in Q4. Revenue rose a healthy 17.5% yr/yr to $864.4 mln, which was well above analyst expectations.
- Of note, SGRY eclipsed the $3 bln annual revenue mark for the first time in 2024 at $3.11 bln (+13.5%), fueled by strong organic results with equal contribution from both case volume and rate improvements, as well as meaningful contributions from recent acquisitions. SGRY has guided to FY25 revs of $3.30-3.45 bln, which was in-line.
- The operating metrics were solid. Same-facility revenue increased +5.6% for Q4, an improvement from +4.2% in Q3. The company performed more than 174,000 surgical cases in Q4, up 14% yr/yr, bringing its full year case count to nearly 657,000, up 8.4%. These cases spanned across all specialties, with an increasing focus on higher acuity procedures. SGRY also posted a good sized increase in revenue per case to $4,963 from $4,800 a year ago.
- SGRY notes that, across its 161 surgical facilities, it partners with top notch surgeons who consistently provide high-quality clinical care. This model positions the company well because it partners with talented physicians. SGRY is seeing above average volume growth at higher acuity levels. Importantly, SGRY provides a cost-efficient environment which is preferred by payers. SGRY focuses on procedures that do not require an overnight hospital stay, so payers can save money by having this done outside the hospital setting.
- A key part of SGRY's growth is acquiring smaller surgery centers. In 2024, it completed a higher volume of acquisitions that were also comparably higher in complexity and it assumed management rights for four ASPs, which required separate and intensive integration efforts. This increased complexity combined with the higher overall volume of activity, contributed to higher costs in 2024. However, SGRY expects those costs to significantly abate in 2025.
- This stock has been on a roller coaster in recent months. The stock gapped lower following its Q3 miss. However, it gapped higher in late January when major shareholder Bain Capital made a non-binding acquisition proposal to acquire SGRY for $25.75/sh. SGRY said on the call this morning that Bain is a valued partner and that it previously announced it had formed a special committee to consider this proposal, but chose not to comment until the review is completed.
Overall, this was a nice bounce back quarter for Surgery Partners after the miss in Q3. The stock gapped higher at the open, but settled back down during the call this morning. Despite this good report and guidance, the long term trading action has been muted for SGRY, it has traded mostly sideways to down over the past two years. We suspect that Bain believes it could do better by taking the company private and making changes. It apparently sees some value down at these levels.
NetApp stumbled trying to close deals in Q3; slumps to 10-month lows today (NTAP)
NetApp (NTAP -17%) slumps to 10-month lows today after missing revenue expectations in Q3 (Jan) and lowering its FY25 (Apr) revenue outlook. The stock had been consolidating throughout 2025 following an over +30% rally in 2024. As a storage and data services provider for enterprises, NTAP has benefited nicely from the surging AI-related demand as the technology demands considerable storage needs.
However, during Q3, NTAP had a few stumbles. CEO George Kurian mentioned that its top-line growth of just 2.2% yr/yr to $1.64 bln was disappointing, adding that it resulted from inconsistent execution revolving around a few deals that slipped out of the quarter. Since then, NTAP has instituted a higher level of deal scrutiny on deal progression through the pipeline, deploying tighter controls on closing plans. The company anticipates these actions will enhance its execution, noting that a number of the slipped deals from the quarter have already closed.
Nevertheless, the damage was done, prompting a sharp pullback today and dwarfing the encouraging trends witnessed during Q3.
- While impacted by poor sales executive, NTAP's C-series capacity flash arrays, Storage GRID systems, and all-flash block systems still each delivered growth in Q3, supporting a 10% jump in all-flash array sales and 1% bump in Hybrid Cloud segment revenue (comprises ~90% of total revs). A notable standout from the quarter was Keystone, NTAP's storage-as-a-service offering, which touted almost 60% growth yr/yr.
- AI continues to underpin healthy demand as customers search for a unified and structured view of their data, the centerpiece of NTAP's business. During Q3, the company's AI business exceeded internal expectations, boasting over 100 infrastructure and data lake (a centralized storage system) wins, which spanned geographies and sizes. NTAP's customers include well-known AI players, from Microsoft (MSFT) to NVIDIA (NVDA).
- In the quarter, NTAP continued to strengthen its ties with Big Tech, announcing innovations to various services used by Amazon (AMZN), Google (GOOG), and MSFT.
- Unfortunately for NTAP, guidance displaced these positives. The company anticipates FY25 revs of $6.49-6.64 bln, down from $6.54-6.74 bln and translating to Q4 revs of $1.65-1.80 bln, the midpoint falling short of consensus. NTAP also lowered its adjusted EPS outlook for the year, targeting $7.17-7.27, down from $7.20-7.40. Management mentioned that FX headwinds clipped $0.08 off its earnings forecast and $30 mln from its prior revenue forecast.
In an environment where AI demand continues to run hot, NTAP's deflating guidance is sending investors packing today. Even though management attempted to alleviate concerns, noting that it has already initiated the proper changes to avoid lackluster sales execution in the future, market participants are not taking any chances today, selling now and asking questions later.
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