| | | Market Snapshot
| Dow | 42520.68 | -670.56 | (-1.55%) | | Nasdaq | 18285.16 | -65.03 | (-0.35%) | | SP 500 | 5778.15 | -71.57 | (-1.22%) | | 10-yr Note | -1/32 | 4.167 |
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| | NYSE | Adv 618 | Dec 2040 | Vol 138 mln | | Nasdaq | Adv 1734 | Dec 2657 | Vol 8.5 bln |
Industry Watch
| Strong: Information Technology |
| | Weak: Financials, Consumer Staples, Industrials, Utilities, Consumer Discretionary, Energy, Industrials |
Moving the Market
-- Reacting to new tariffs implemented and retaliatory actions/announcements by Canada, Mexico, and China
-- Growth worries still in play; TGT highlighting cautious consumer and warning of price increases
-- Choppy action in the mega cap space, boosting major indices before rally lost steam
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Closing Summary
04-Mar-25 16:25 ET
Dow -670.56 at 42520.68, Nasdaq -65.03 at 18285.16, S&P -71.57 at 5778.15
[BRIEFING.COM] Today's trade featured a negative bias. Market participants were grappling with the same themes that have been in play of late: growth concerns and tariff uncertainty.
The trade war heated up after 25% tariffs for Canada and Mexico went into effect today and tariffs on China increased by 10% to 20%, and the countries announced subsequent retaliatory measures.
Growth concerns also remain top of mind following earnings and guidance from Target (TGT 117.14, -3.62, -3.0%) and Best Buy (BBY 75.20, -11.54, -13.3%). The companies warned that price increases are likely, which may impact consumer demand and lead to lower growth in earnings and in the economy. Target's CEO also highlighted that the consumer has been cautious already.
The Dow Jones Industrial Average settled 1.6% lower; the S&P 500 dropped 1.2%; and the Nasdaq Composite registered a 0.4% decline. There was some mid-day improvement, however, that coincided with the S&P 500 approaching its 200-day moving average (5,725).
The Nasdaq Composite traded above its prior close at its best level of the session, boosted by gains in some mega cap names, before selling increased again. NVIDIA (NVDA 115.99, +1.93, +1.7%) was helpful in that respect, recovering from a 3.4% decline at its low.
Other mega caps that participated in the upside ride returned to negative territory as the afternoon rally met selling interest. Amazon.com (AMZN 203.80, -1.22, -0.6%) was among them, trading up as much as 0.9% after bouncing off its 200-day moving average (198).
Ultimately, ten of the 11 S&P 500 sectors logged declines. The heavily-weighted financial sector, which houses 14.7% of the S&P 500 in terms of market capitalization, sank 3.5%. Six other sectors declined more than 1.0%.
There was no US economic data of note today.
- Dow Jones Industrial Average: -0.1% YTD
- S&P 500: -1.8% YTD
- S&P Midcap 400: -4.6% YTD
- Nasdaq Composite: -5.3%
- Russell 2000: -6.8% YTD
Looking ahead to Wednesday, market participants receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.2%)
- 8:15 ET: February ADP Employment Change (Briefing.com consensus 145,000; prior 183,000)
- 9:45 ET: Final February S&P Global U.S. Services PMI (prior 49.7)
- 10:00 ET: February ISM Services (Briefing.com consensus 53.0%; prior 52.8%) and January Factory Orders (Briefing.com consensus 1.3%; prior -0.9%)
- 10:30 ET: Weekly crude oil inventories (prior -2.33 mln)
Stocks sink ahead of the close
04-Mar-25 15:35 ET
Dow -399.10 at 42792.14, Nasdaq +91.19 at 18441.38, S&P -30.07 at 5819.65
[BRIEFING.COM] The major indices pulled back from session highs over the last half hour. The S&P 500 trades 25 points lower.
Elsewhere, the 10-yr yield settled three basis points higher at 4.21% and the 2-yr yield settled two basis points lower at 3.96%.
Looking ahead to Wednesday, market participants receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.2%)
- 8:15 ET: February ADP Employment Change (Briefing.com consensus 145,000; prior 183,000)
- 9:45 ET: Final February S&P Global U.S. Services PMI (prior 49.7)
- 10:00 ET: February ISM Services (Briefing.com consensus 53.0%; prior 52.8%) and January Factory Orders (Briefing.com consensus 1.3%; prior -0.9%)
- 10:30 ET: Weekly crude oil inventories (prior -2.33 mln)
Technical support boosts some mega caps
04-Mar-25 15:05 ET
Dow -256.16 at 42935.08, Nasdaq +125.94 at 18476.13, S&P -12.56 at 5837.16
[BRIEFING.COM] The Nasdaq Composite trades about 125 points higher, thanks in large part to mega cap buying interest.
The upside pull in mega caps seems to be a manifestation of the buy-the-dip mentality that had been working for market participants earlier this year. Apple (AAPL 238.62, +0.58, +0.2%), Amazon.com (AMZN 205.94, +0.93, +0.5%), and Microsoft (MSFT 390.78, +2.31, +0.6%) are standouts in that respect.
Some technical movement is in play for Amazon, which traded one point below its 200-day moving average (198) at its session low before support stepped in.
The overall bias is still negative, though. The Invesco S&P 500 Equal Weight ETF (RSP) shows a 0.5% decline. Decliners have a 2-to-1 lead over advancers at the NYSE and an 11-to-10 lead at the Nasdaq.
S&P 500 trims losses as SMCI rebounds, while KKR, INTC, and AT&T lag
04-Mar-25 14:25 ET
Dow -250.73 at 42940.51, Nasdaq +129.08 at 18479.27, S&P -10.29 at 5839.43
[BRIEFING.COM] The march off lows continued in the last half hour, the S&P 500 (-0.18%) now only about 10 points off yesterday's close.
Briefly, S&P 500 constituents KKR (KKR 124.97, -8.04, -6.04%), Intel (INTC 21.60, -1.14, -5.01%), and AT&T (T 26.35, -1.37, -4.94%) dot the bottom of the average. This morning KKR announced an offering of mandatory convertible preferred stock, while INTC was the subject of a report suggesting Panther Lake production was delayed, and T found notable losses today after investors deemed comments from the company's appearance at a Morgan Stanley investor conference as unfavorable.
Meanwhile, Super Micro Computer (SMCI 40.10, +4.03, +11.17%) is atop the standings, recouping a decent portion of yesterday's losses.
Stocks mixed as Nasdaq hits session highs; gold rises on weaker dollar
04-Mar-25 14:00 ET
Dow -348.74 at 42842.50, Nasdaq +64.52 at 18414.71, S&P -25.50 at 5824.22
[BRIEFING.COM] The broader market is at session highs, albeit in a mixed effort with the Nasdaq Composite (+0.35%) now narrowly ahead of yesterday's close.
Gold futures settled $19.50 higher (+0.7%) to $2,920.60/oz, aided in part by losses in the greenback.
Currently, the U.S. Dollar Index is down about -0.7% to $105.77.
AutoZone's mixed Q4 report looks better when looking under the hood (AZO)
AutoZone (AZO) is displaying impressive resiliency in the face of another tariff-induced selloff across the broader stock market after the auto parts retailer reported mixed 2Q25 results. At first glance, the relative strength looks rather surprising given that AZO missed EPS expectations for the third consecutive quarter. Furthermore, AZO's same store sales of +0.5% came up just short of analysts' estimates.
However, the primary driver behind the EPS and same store sales misses is tied to greater-than-anticipated foreign exchange headwinds, rather than operational issues. With 813 stores in Mexico and 136 in Brazil, AZO has significant exposure to foreign currency fluctuations -- in particular, a stronger U.S. dollar against the Mexican Peso and Brazilian Real is pressuring AZO's results.
- When looking at AZO's results on a constant currency basis, its performance looks much better. For instance, total same store sales were +2.9% in constant currency, with strong international comps of +9.5% compared to (8.2)% on a reported basis. Despite the current FX headwinds, AZO plans to keep its foot on the gas in terms of international store expansion. After opening 13 new stores in Mexico and 4 in Brazil in Q2, AZO is planning to open another 100 international stores in FY25.
- Another area of strength is the domestic commercial business, which sells parts and services to repair shops through its stores, hubs, and distribution centers. Expanding this business has been a focal point for AZO and that strategy is paying off as domestic commercial sales grew by 7.3% in Q2. An aging U.S. vehicle fleet and an apprehensive consumer who would rather repair an existing car than add a large car payment to their monthly budget is helping to support this business.
- The domestic DIY business has been a soft spot for AZO, driven by weakness in product categories that are more discretionary in nature, such as accessories, appearance chemicals, and tools. This business, though, continues to gradually trend in the right direction. Following a -0.4% comp in Q4, domestic DIY comps swung into positive territory last quarter at +0.3% and edged higher again in Q2 to +0.5%.
The main takeaway is that the FX headwinds tarnished AZO's headline numbers, but when looking under the hood, its results were actually quite solid. AZO is experiencing healthy growth in its international and domestic commercial business, while the DIY business is showing steady improvement. AZO has momentum behind it, but tariffs could throw a wrench in the company's performance this year.
Sea Limited makes waves today as it delivers another solid performance in Q4 (SE)
Sea Limited (SE +7%) is making waves today after delivering another sizeable revenue beat on improving profitability in Q4. The e-commerce, gaming, and financial services giant in Southeast Asia has consistently taken the right actions to enhance the profitability of Shopee (its e-commerce division) and boost Free Fire users (its gaming division), all while steadily fortifying its financial services offerings, which acts as a significant contributor to the company's top and bottom-lines each quarter.
- In Q4, Shopee's gross orders jumped by 20% yr/yr to $3.0 bln, with gross merchandise volume (GMV) expanding at a quicker rate to $28.6 bln. E-commerce adjusted EBITDA was $152 mln in Q4, reversing a $(225) mln loss in the year-ago quarter. Livestreaming contributed roughly 15% of Shopee's order volume. Management mentioned that improving live streaming unit economics will enhance Shopee's profitability this year.
- Live shopping streams have been a staple in China, with e-commerce titan Pinduoduo (PDD) being a leader in this space after disrupting the industry and forcing established giants like JD.com (JD) and Alibaba (BABA) to come up with similar offerings. With the success in China, companies have been bringing it to other countries, such as Bytedance's TikTok Shop.
- Digital Financial Services ended FY24 with revenue 30% higher yr/yr and adjusted EBITDA of over $700 mln. During Q4, SE delivered loan book growth above 60%, surpassing $5.0 bln and making it one of Southeast Asia's largest consumer lending businesses. Notably, SE added around 4 mln first-time borrowers without increasing its risk exposure as its 90-day nonperforming loan ratio (percentage of nonperforming loans versus total loans) remained stable at 1.2%.
- In Digital Entertainment, Free Fire's comeback in 2024 supported a 19% uptick in bookings and a 33% jump in adjusted EBITDA to $290 mln. SE attributed the Free Fire rebound to its user engagement tactics, prioritizing accessibility as the game remains a lightweight title that can run smoothly on numerous devices. Given that the game is played in over 160 markets, where hardware can vary drastically, accessibility remains central to long-term growth.
- SE is optimistic about 2025. The company anticipates growth across the board this year, projecting Shopee's GMV growth to be around 20% while still delivering improving profitability. In Digital Financial Services, SE expects its loan book to grow meaningfully faster than Shopee's GMV growth. In Digital Entertainment, SE will continue scaling its user base and broadening its content, underpinning an expected double-digit yr/yr jump in bookings and users.
SE's solid Q4 performance reflects management's emphasis on profitable growth. In late 2023, investors were dismayed by SE's decision to pivot to growth after outlining profitability plans just a few quarters earlier. SE noted that shifting focus back to expanding its top-line was imperative to stave off competitive pressures. Following a few months of volatility, SE quickly showcased that it had made the right decision. We noted in November that SE was poised for further upside; we continue to like the company's direction despite potential economic volatility over the near term.
Best Buy plummets as disappointing guidance and tariff concerns outweigh upside Q4 results (BBY)
Best Buy (BBY) comfortably exceeded 4Q25 EPS and revenue estimates while achieving its first positive comp since 3Q22 as the recovery in PCs and tablets continued to gain steam. However, this good news is being clouded over by BBY's tepid 1Q26 comp guidance, which calls for a return to negative territory at "slightly down versus last year", and a FY26 EPS outlook that fell short of expectations based on the midpoint of the guidance range.
Making matters worse, the company's guidance doesn't contemplate the potential impact of tariffs, so its FY26 forecast looks like a "best case scenario." Particularly damaging to BBY is the doubling of the tariff on Chinese imported goods to 20% from 10%. According to CEO Corie Barry, approximately 60% of BBY's cost of sales move through China in some form. Therefore, the tariffs placed on China will ultimately result in higher prices for PCs, laptops, phones, and other devices as manufacturers pass on the higher costs.
- The tariffs come just as BBY was experiencing a long-awaited recovery in the computing and mobile phone categories, which account for approximately 44% of its total sales. In Q4, domestic comparable sales for the combined computing and tablet categories jumped by 9% as the upgrade and replacement cycle accelerated. This momentum, though, will soon be put to the test when higher prices begin to trickle through at a time when consumers are still reeling from the effects of inflation and high interest rates.
- Overall, enterprise level comps edged higher by 0.5%, beating expectations and ending a long streak of yr/yr declines. Strength in computing was partly offset by ongoing softness in appliances, gaming, and home theater, although BBY saw some improvement in TVs and headphones within the theater category.
- BBY is still seeing some consumer hesitancy around big-ticket purchases and the company expects that to continue in FY26. When new product innovations are released, consumers have been more willing to pull the trigger on a purchase. With that in mind, BBY's FY26 comp guidance of flat to +2% is based on growth weighted towards 2H26 based on the timing of new product launches, including AI PCs.
- During this difficult stretch, BBY has prioritized its high-margin services business, like installation, repair, and support for electronics and appliances. This has had a positive impact on BBY's margins and earnings, helping it to mitigate the consistent sales declines. In Q4, domestic gross margin expanded by 50 bps yr/yr to 20.9%.
While BBY turned in a solid Q4 performance, mainly driven by strengthening PC and laptop sales, the company's tepid outlook and intensifying concerns about the impact of tariffs on its business are outweighing the solid quarterly results.
Target a bit off target; Q4 results were decent, but investors should brace for a rough Q1 (TGT)
Target (TGT -5%) is heading lower after reporting Q4 (Jan) results this morning. After a big EPS miss last quarter, Target bounced back with a nice EPS beat in Q4. Revenues fell 3.1% yr/yr to $30.91 bln, which was also better than expected. The FY26 EPS guidance was in-line, while revenue guidance was below expectations. In a bit of a worry, TGT usually guides for next quarter EPS and comps, but did not with this report. That was a bit concerning and hopefully not a long term policy change.
- Same store comps for Q4 came in at +1.5% (in-store -0.5%; digital +8.7%), right in-line with prior guidance of +1.5%. Comps reflected strong traffic and digital performance. Comp trends in Apparel and Hardlines accelerated by nearly four percentage points vs Q3. Results were led by strong performances in Beauty, Apparel, Entertainment, Sporting Goods and Toys.
- Unfortunately, we did not get comp guidance for Q1 (Apr), however, we did get some color. During February, Target saw record performance around Valentines Day. However, its topline performance for the month was soft as uncharacteristically cold weather across the US affected apparel sales. In addition, declining consumer confidence impacted its discretionary assortment overall. Target did guide for full year comps being about flat.
- Looking ahead, Target expects to see a moderation in this trend as apparel sales respond to warmer weather around the country, and consumers turn to Target for upcoming seasonal moments such as the Easter holiday. Target plans to monitor these trends and remains appropriately cautious with expectations for the year ahead.
- We watch Target's operating margins closely. In Q4, that dropped to 4.7% from 5.8% in the prior year period. Margins were impacted by higher digital fulfillment and supply chain costs and higher promotional and clearance markdown rates. These pressures were partially offset by the net benefit of other merchandising activities.
- Target did not guide for Q1 operating margin, but it sounds like investors need to be prepared for a big margin decline. The company is seeing ongoing consumer uncertainty and it already posted a small decline in February sales. Also, tariff uncertainty and the expected timing of certain costs within the fiscal year leads Target to expect meaningful yr/yr profit pressure in Q1 relative to the remainder of the year.
As we said in our preview, our concern was not really about Q4 given that Target provided guidance late in the quarter. Given Walmart's (WMT) weak guidance, we were much more concerned about Target's Q1 and FY26 guidance. The FY26 guide was decent with flat comps. However, investors need to brace for a rough Q1 from both a comp and margin perspective. It was also a bit scary that TGT changed course and provided no guidance for the next quarter. Hopefully, that's not a long term change.
Okta given clearance to soar today following an energetic Q4 report and FY26 guidance (OKTA)
Okta (OKTA +19%) has been given clearance to break to nine-month highs today following an upbeat Q4 (Jan) report, exceeding earnings and sales estimates in the quarter and projecting its upward momentum to follow through in FY26. The cybersecurity company, focused on identity and access management, has posted impressive back-to-back quarters, helping recover from a post-Q2 (Jul) sell-off in late August when billings missed the mark and forward-looking comments spooked investors.
- As expected, OKTA toppled its headline forecasts in Q4, maintaining its rich history of outperformance each quarter. The company registered adjusted EPS of $0.78, surpassing its prediction of $0.76-0.77, and closed the year with non-GAAP operating margins of 28%, up 6 pts from FY24. Revenue growth remained in low double-digit territory, expanding by 12.7% yr/yr to $682 mln, above OKTA's $667-669 mln forecast.
- OKTA attributed its outperformance to several factors. Sales productivity reached a multi-year high, with Auth0 (an identity verification platform OKTA acquired in 2021) delivering its best bookings quarter ever. OKTA also observed notable strength in cross-selling to existing SIEM (security information and event management) customers.
- Unlike two quarters ago, RPO was robust, increasing by 25% and crossing the $4.0 bln threshold. Underpinning these gains was an uptick in the weighted average term length for deals in the quarter. OKTA also enjoyed record bookings in Q4, crossing the $1.0 bln in TCV for the first time.
- Large deals remain the driving force. For perspective, the TCV (total contract value) of OKTA's top 25 deals in Q4 surpassed $320 mln. Meanwhile, the company added 25 customers in Q4 with $1.0 mln or more in ACV (annual contract value). This cohort now represents over $1.0 bln in total ACV. Additionally, regarding large deals, OKTA noted that in Q4, it exceeded $1.0 bln in aggregate TCV with Amazon (AMZN) AWS in just the four years since it inked the partnership. For the year, AWS revs surged by over 80%.
OKTA anticipates its tailwinds to hold this year, projecting FY26 adjusted EPS of $3.15-3.20, a marked improvement from the $2.81 in FY25, and revs of $2.85-2.86 bln, translating to a 9% jump yr/yr at the midpoint, a slight slowdown from the 15% posted in FY25. The minor deceleration illuminates the dynamic economic picture. IT departments continue to examine their budgets closely, keeping a lid on frivolous spending.
However, cybersecurity is a necessity. While breaches can still occur when leveraging cybersecurity tools -- the massive data breach of OKTA's customer support system in 2023 is a prime example -- the damage firms are exposed to without cybersecurity can be catastrophic. Many of OKTA's peers have touched on the strong momentum within the cybersecurity landscape. Palo Alto Networks (PANW) commented on upward momentum across much of its business during Q2 (Jan). IBM (IBM) stated yesterday that cybersecurity is one of the critical factors facing its clients. There could be elevated volatility in the short run as the markets digest many influential headlines. However, cybersecurity trends underscore a favorable backdrop for OKTA over the long run. |
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