Market Snapshot
| Dow | 41841.32 | +353.44 | (0.85%) | | Nasdaq | 17808.66 | +54.58 | (0.31%) | | SP 500 | 5675.12 | +36.18 | (0.64%) | | 10-yr Note | +1/32 | 4.309 |
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| | NYSE | Adv 2172 | Dec 519 | Vol 1.1 bln | | Nasdaq | Adv 3048 | Dec 1308 | Vol 6.3 bln |
Industry Watch
| Strong: Energy, Real Estate, Consumer Staples, Industrials, Financials, Materials, Health Care |
| | Weak: Consumer discretionary |
Moving the Market
-- Ongoing buy-the-dip trade after S&P 500 entered correction territory last week
-- Turnaround in mega caps boosting major indices
-- Digesting news that new U.S. Trade Representative Greer aims for a more orderly rollout of reciprocal tariffs on April 2.
-- Reacting to this morning's data; Empire Manufacturing Survey for March showed a contraction in business activity and a pickup in prices paid and prices received, U.S. retail sales and retail sales, excluding autos, were weaker than expected in February
-- Calm action in Treasuries
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Closing Summary
17-Mar-25 16:25 ET
Dow +353.44 at 41841.32, Nasdaq +54.58 at 17808.66, S&P +36.18 at 5675.12
[BRIEFING.COM] Today's trade featured a positive bias through the entire session, reflecting an ongoing buy-the-dip mentality after the S&P 500 entered correction territory last week. Losses in the mega cap space limited index performance in the early going, but market breadth reflected more buying interest under the index surface. Advancers had a 4-to-1 lead over decliners at the NYSE and a 5-to-2 lead at the Nasdaq.
Buying increased in many areas of the market in the afternoon trade, sending the major indices to session highs. This followed a Bloomberg report indicating that the newly confirmed U.S. Trade Representative Greer aims for a more orderly rollout of reciprocal tariffs on April 2.
The afternoon rebound was also helped by recovery action in a few mega cap names. Apple (AAPL 214.00, +0.51, +0.2%), which traded down as much as 1.6% at its low of the day, and Microsoft (MSFT 388.70, +0.14, +0.04%), which traded down as much as 0.8% at its worst level of the day, were influential winners in that respect. The two stocks combined comprise 13% of the S&P 500 in terms of market-cap.
Market participants were largely unbothered by this morning's economic releases. U.S. retail sales and retail sales, excluding autos, were weaker than expected in February, yet control group sales (excluding auto, gasoline station, building materials, and food services sales) were up a solid 1.0%. The New York Fed's Empire Manufacturing Survey for March showed a contraction in business activity and a pickup in prices paid and prices received.
Ten of the 11 S&P 500 logged gains, led by energy (+1.7%) amid rising oil prices ($67.58/bbl, +0.39, +0.6%). The move in oil was related to increased geopolitical tensions in the Middle East after President Trump warned Iran after Houthi attacks on US vessels that any further attacks by Houthi rebels will be looked upon as "a shot fired from the weapons and leadership of Iran." Uncertainty in the Middle East translates to higher prices in oil on concerns about supply disruptions.
Elsewhere, selling increased in Treasuries as buying picked up in equities following the pleasing tariff-related headline. The 10-yr yield settled the session unchanged from Friday at 4.31% and the 2-yr yield settled three basis points higher at 4.05%.
- Dow Jones Industrial Average: -1.7% YTD
- S&P 500: -3.5% YTD
- S&P Midcap 400: -4.8% YTD
- Nasdaq Composite: -7.8%
- Russell 2000: -7.3% YTD
Reviewing today's economic data:
- Retail sales increased 0.2% month-over-month in February (Briefing.com consensus 0.7%) following a downwardly revised 1.2% decline (from -0.9%) in January. Excluding autos, retail sales were up 0.3% month-over-month (Briefing.com consensus 0.4%) following a 0.6% decline (from -0.4%) in January.
- The key takeaway from the report is that control group retail sales, which exclude auto, gasoline station, building materials, and food services sales, jumped 1.0% month-over-month following a downwardly revised 1.0% decline (from -0.8%) in January.
- The New York Fed's Empire Manufacturing Survey for March showed the General Business Conditions Index declining to -20.0 in March from 5.7 in February. A number below 0.0 denotes a contraction in business activity in the New York Fed region. The Prices Paid Index rose five points to 44.9, its highest level in more than two years, while the Prices Received Index jumped three points to 22.4, hitting its highest level since May 2023.
- The key takeaway from the report is that it plays into some of the stagflation worries that have infiltrated the market.
- January Business Inventories increased 0.3%, as expected, following a 0.2% decline in December.
- The March NAHB Housing Market Index dropped to 39 (Briefing.com consensus 43) from 42 in February.
Tuesday's economic data includes:- 8:30 ET: February Housing Starts (Briefing.com consensus 1.385 mln; prior 1.366 mln), Building Permits (Briefing.com consensus 1.450 mln; prior 1.483 mln), February Import Prices (prior 0.3%), Import Prices ex-oil (prior 0.1%), Export Prices (prior 1.3%), and Export Prices ex-agriculture (prior 1.5%)
- 9:15 ET: February Industrial Production (Briefing.com consensus 0.2%; prior 0.5%) and Capacity Utilization (Briefing.com consensus 77.7%; prior 77.8%)
Selling picked up in Treasuries as buying picked up in equities
17-Mar-25 15:35 ET
Dow +483.56 at 41971.44, Nasdaq +128.75 at 17882.84, S&P +53.65 at 5692.59
[BRIEFING.COM] The major indices remain near session highs ahead of the close.
Selling increased in Treasuries as buying picked up in equities after it was reported that new U.S. Trade Representative Greer aims for a more orderly rollout of reciprocal tariffs on April 2. The 10-yr yield settled the session unchanged from Friday at 4.31% and the 2-yr yield settled three basis points higher at 4.05%.
Separately, Tuesday's economic data includes:
- 8:30 ET: February Housing Starts (Briefing.com consensus 1.385 mln; prior 1.366 mln), Building Permits (Briefing.com consensus 1.450 mln; prior 1.483 mln), February Import Prices (prior 0.3%), Import Prices ex-oil (prior 0.1%), Export Prices (prior 1.3%), and Export Prices ex-agriculture (prior 1.5%)
- 9:15 ET: February Industrial Production (Briefing.com consensus 0.2%; prior 0.5%) and Capacity Utilization (Briefing.com consensus 77.7%; prior 77.8%)
Mega cap turnaround boosts market
17-Mar-25 14:55 ET
Dow +523.56 at 42011.44, Nasdaq +165.30 at 17919.39, S&P +62.51 at 5701.45
[BRIEFING.COM] The major indices trade at or near session highs. The S&P 500 shows a 1.1% gain and trades about 62 points higher than Friday.
The afternoon upturn in the major indices coincided with some mega caps turning positive. Apple (AAPL 214.69, +1.20, +0.6%), which traded down as much as 1.6%, Microsoft (MSFT 392.65, +4.09, +1.0%), which traded down as much as 0.8%, and Broadcom (AVGO 195.89, +0.33, +0.2%), which traded down as much as 4.1%, are standouts from the space.
All 11 S&P 500 sectors trade up now and the Invesco S&P 500 Equal Weight ETF (RSP) shows a 1.7% gain.
S&P 500 climbs nearly 1% as ENPH, GEV, HII lead; DFS drops on cautious report
17-Mar-25 14:30 ET
Dow +462.87 at 41950.75, Nasdaq +132.98 at 17887.07, S&P +54.46 at 5693.40
[BRIEFING.COM] The S&P 500 (+0.97%) has continued to climb higher along with its counterparts, just shy of +1% on the day.
Briefly, S&P 500 constituents Enphase Energy (ENPH 63.11, +4.98, +8.57%), GE Vernova (GEV 333.40, +19.77, +6.30%), and Huntington Ingalls (HII 207.33, +11.17, +5.69%) pepper the top of the standings despite a dearth of corporate news.
Meanwhile, Discover Financial Services (DFS 146.57, -17.69, -10.77%) is today's top laggard owing to a recent cautious report related to the company's deal with Capital One (COF 161.16, -10.71, -6.23%).
Gold hovers near record highs as weaker dollar, growth concerns boost safe-haven demand
17-Mar-25 14:00 ET
Dow +398.54 at 41886.42, Nasdaq +57.90 at 17811.99, S&P +40.47 at 5679.41
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.33%) is at the bottom of the major averages, though still holds gains north of 55 points.
Gold futures settled $5.10 higher (+0.2%) to $3,006.10/oz, hovering near record highs as a weaker dollar, growth concerns fuel safe-haven demand.
Currently, the U.S. Dollar Index is down about -0.3% to $103.43.
Intel's new CEO-fueled comeback gains steam as it eyes new AI strategy, manufacturing changes (INTC)
Intel (INTC) is jumping sharply higher once again after Reuters reported that the company's new CEO, Lip-Bu Tan, is looking to make significant changes to its manufacturing processes and its AI strategies. The news is further amplifying hopes that Tan can execute a dramatic turnaround at INTC, which saw shares plummet by over 60% during former CEO Pat Gelsinger's tenure.
- Since INTC announced Mr. Tan as its new CEO, the stock has soared by nearly 25%. That optimism largely rests on Mr. Tan's prior success as CEO at Candence Design Systems (CDNS), where he prioritized investments in new AI/ML technology to create competitive advantages which ultimately led to strong financials and a 15-fold increase in CDNS's stock price during his time as CEO.
- His first order of business at INTC will be to determine the path forward for the struggling and highly unprofitable Foundry segment, which had been a cornerstone of Gelsinger's mission to make INTC the world's second largest chip manufacturer, behind only Taiwan Semiconductor Manufacturing (TSM). With Gelsinger at the helm, however, it's been reported that decision making was too slow and that too many layers of middle-management were impeding INTC's transformation.
- Rather than completely moving away from Gelsinger's IDM 2.0 strategy, which was seemingly recently on the table as INTC considered spinning off or selling the Foundry unit, Tan is looking to make some significant changes to the manufacturing strategy. Initiating another round of layoffs is a possibility, while refocusing on AI server chips -- an area INTC has fallen far behind competitors such as NVIDIA (NVDA) and Arm Holdings (ARM) -- will likely be another key tenet of the turnaround.
INTC is also expected to ramp up its go-to-market strategy for Foundry, becoming more aggressive in its efforts to add new customers. Overall, this new and more sharpened focus is providing some optimism that the worst is now behind INTC and that it's on a clearer path forward.
Science Applications' strong beat-and-raise Q4 report calms DoD budget worries (SAIC)
For the third consecutive quarter, Science Applications (SAIC) comfortably exceeded EPS and revenue expectations, driven by significant new contract wins within the U.S. military complex and healthy operating margin expansion. Despite the company's recent winning streak versus analysts' estimates, sentiment has been decisively bearish on the provider of engineering and IT services for U.S. government agencies. This weakness is primarily related to the Trump administration's directive to reduce the size of the budget of the Department of Defense (DoD), while identifying $50 bln in program cuts for the FY26 budget.
Based on SAIC's strong Q4 results and upwardly revised FY26 EPS and revenue guidance, it appears that those concerns revolving around a spending slowdown at the DoD were mostly overblown.
- Subsequent to the quarter end, SAIC received a $1.8 bln contract award from the U.S. Army, marking its largest recompete win in recent years. With this win, alongside a growing list of other submitted bids, the company's backlog has grown to approximately $20.0 bln, providing it with a stable foundation for future revenue generation.
- A key factor driving SAIC's growing backlog is its expansion into cybersecurity services through key partnerships, such as its relationship with Xage Security which has accelerated its zero trust security capabilities. Given that cyber-attacks are increasing in both complexity and volume, with governmental agencies oftentimes representing a primary target, spending on cybersecurity tools remains a priority. As a recent example, SAIC secured a $170.9 mln contract from the Texas Department of Information Resources in December 2024 to enhance the cybersecurity of state agency networks.
- Additionally, many government and military institutions are in need of modernizing their IT infrastructure. Last May, the company was a awarded a five-year, $232 mln task order by the U.S. Army to provide systems engineering and IT modernization support in order to develop signals intelligence and electronic warfare systems.
- Effective cost management and better operational efficiencies are combining with the healthy bookings growth to push margins and earnings higher. In Q4, adjusted operating margin expanded by 250 bps to 9.6%, facilitating an 80% surge in EPS to $2.57.
SAIC delivered an impressive beat-and-raise earnings report, easing fears that a sharp pullback in spending at the DoD would put a serious dent in demand for the government contractors' IT services.
Guess? pops on proposal to go private; co-founders and CEO see value down here (GES)
Guess? (GES +26%) is surging today after announcing it received a non-binding proposal from WHP Global to acquire the company for $13 per share in cash for all shares other than shares held by certain existing shareholders, including co-founders Paul and Maurice Marciano and CEO Carlos Alberini, who would then be considered rollover shareholders. GES has formed a Special Committee to evaluate the proposal.
- There is a successful history between the two parties. In April 2024, GES partnered with WHP Global to acquire fashion brand rag & bone. GES says the brand was already on a solid growth trajectory when GES acquired it, but it's now working to leverage its platform to really supercharge rag & bone's growth by using existing relationships to quickly bring the brand to market in new markets like Europe and beyond.
- Guess? is a significant luxury brand with about $6 bln in revenues measured at full retail value, when you include licensing deals. Roughly $3 bln of that revenue flows through the its own P&L. GES has a large US presence, but about 75% of its sales come from outside the US. Its largest market is Europe followed by the Americas and then Asia.
- Shares for this fashion retailer of contemporary apparel, denim, handbags, watches, eyewear has had a rough go of it over the past year. The stock has been in a steady decline from $33.50 in April 2024 to Friday's close of $9.70. GES has posted lackluster growth for its core Guess business in recent quarters. Also, FX has been a headwind given its higher international exposure. Top line growth has picked up recently, but that was mostly fueled by the addition of rag & bone.
Our sense is that this offer looks like a decent off-ramp for investors. The 34% premium to Friday's close looks pretty attractive. Also, it's a tough time right now for luxury fashion companies as people seek to focus more on value purchases. Also, apparel companies are facing rising costs and online competition. Just this weekend, Forever 21's US operator filed for bankruptcy. Abercrombie & Fitch (ANF) is also struggling.
Clearly the co-founders and CEO believe the stock is being undervalued. The stock is trading at a P/E of 6x, even after today's jump, so there is a good argument to be made. Also, its rag & bone acquisition is performing well. However, investors appear to be focusing on the core Guess brand's lackluster top line growth, which has been pressuring the stock.
Affirm losing its partnership with Walmart (WMT) to Klarna; fuels aggressive pullback today (AFRM)
Buy now, pay later (BNPL) platform Affirm (AFRM -12%) sells off today after losing its partnership with Walmart (WMT), which announced it would leverage Klarna for its BNPL loans. The timing is perfect for Klarna, which filed documents for a potential IPO on Friday after the close, gearing up for a possible listing this year. Conversely, while having its ties cut with its long-time partner, providing BNPL services since 2019, is never welcomed, it comes at a moment when AFRM has already tumbled by nearly 40% from February highs.
AFRM recently reported impressive Q2 (Dec) results, supporting a jump to three-year highs last month, headlined by a 35% pop in gross merchandise volume (GMV) yr/yr, an uptick from the previous quarter. AFRM noticed an increasing demand for 0% APR offers across a broad scope of merchants and verticals. At the same time, management mentioned that U.S. consumers, which comprise nearly all of AFRM's revenue (a key difference compared to Klarna and its greater international presence), were healthy, continuing to shop and pay back loans.
However, economic conditions and consumer sentiment have soured rapidly in the weeks since AFRM's Q2 report. Retailers, including WMT, have issued cautious outlooks amid tariff and inflation uncertainty. While AFRM has repeatedly noted that it is not in the business of nudging consumers to spend more, if they are spending significantly less, the company will ultimately feel the consequences, driving such a sharp pullback over the past several weeks.
- WMT was a meaningful partner for AFRM. The company stated today that the merchant comprised 5% of its GMV during the final six months of 2024. WMT currently offers AFRM's BNPL services for online and in-person checkout, expanding to its checkout kiosks at over 4,500 stores in late 2023. Given WMT's domestic presence and steady market share capture, AFRM likely enjoyed meaningful growth exclusively from its logo being prominently displayed at Walmart.
- AFRM also referenced some of its most important partnerships in past conference calls, noting how WMT, as well as other e-commerce titans, like Amazon (AMZN) and Shopify (SHOP), were major partners, illuminating their influence on overall growth.
- An underlying factor as to why WMT gravitated toward Klarna is OnePay, the retailer's majority-owned fintech firm, which already started offering BNPL loans last year. Klarna is partnering with OnePay to provide the BNPL services via the OnePay app. While AFRM will remain the logo for now, Klarna will become the exclusive option once it is fully integrated with OnePay sometime this year.
While AFRM boasts brand loyalty, getting the boot altogether is an entirely different situation. After WMT announced its BNPL offering last year, AFRM noted that its brand loyalty insulates it from facing a material fallout in revenue from OnePay, adding that even when its services are the second or third option on e-commerce sites, it still witnesses plenty of growth. However, AFRM's logo will no longer be displayed at WMT locations or online after this year, giving up a lucrative partnership when anxieties about the economy escalate. As a result, AFRM may continue to face outsized selling pressure.
The Big Picture
Last Updated: 14-Mar-25 16:58 ET | Archive
How bad can a recession be?
Column summary:
- Earnings estimates decline in a recession.
- The depth and/or duration of any recession will ultimately dictate how bad an earnings decline will be.
- Portfolio adjustments can mitigate recession risks.
Recessions are part of the business cycle. Fortunately, they do not happen often, but when they happen, they hurt in more ways than one. People lose their jobs, credit defaults increase, businesses suffer as customers spend less, loans are harder to get, and stock prices take a hit.
Why do stock prices take a hit?
- Earnings contract and earnings estimates get cut.
- Investors refocus efforts on preserving capital versus the traditional pursuit of seeking a return on capital.
- Emotional selling, driven by the fear of suffering additional losses, takes root.
- Margin calls happen as stock prices slide, triggering forced sales for overleveraged investors unable to meet margin loan requirements.
- Investor confidence is shaken, resulting in fewer buyers and more sellers.
The main item at the root of it all, though, is that first item: earnings contract and earnings estimates get cut.
Some Brutal Episodes
Not all recessions are the same.
The Great Recession of December 2007 to June 2009 (sparked by the financial crisis) was brutal. It lasted 18 months, housing prices plummeted, the unemployment rate spiked to 10%, and the S&P 500 declined as much as 57%.
The COVID recession was also brutal. The unemployment rate spiked to 14.8% and the S&P 500 declined as much as 32%. The remarkable thing about the COVID recession, though, is that it lasted just two months (February 2020 to April 2020) in NBER Business Cycle dating terms thanks to the massive fiscal and monetary policy stimulus implemented by Congress and the Federal Reserve. The psychological and economic effects of that recession, however, lasted a lot longer than two months.
Still, with the U.S. economy and global economy effectively grinding to a halt in early 2020, one can imagine how that quickly changed the earnings outlook. You can see that in the chart below.
The forward 12-month EPS estimate, which stood at $175.00 on January 20, 2020, dropped to $138.48 as of May 15, 2020. That is a 20.9% decline. The average peak-to-trough earnings drop in a recession since 1960 has been about 31%, according to Yale University Professor Robert Shiller's data.
In one sense, then, the COVID recession wasn't nearly as bad as the Great Recession, but it was worse than the recession associated with the dot-com bust and 9/11.
Recession Talk in the Air
Lately, there has been a lot of talk about the U.S. economy facing the risk of a recession. That narrative has picked up with the inversion of the 3-month T-bill yield and the 10-year Treasury note yield, the arrival of some disappointing economic reports signaling some weakness in consumer spending and consumer confidence, and of course the cloud of uncertainty swirling around tariff and counter-tariff actions.
The price action in the stock market has exacerbated the recession worries, partly because it has featured the outperformance of the counter-cyclical sectors and partly because of the reduced wealth effect tied to the roughly $5 trillion decline in the S&P 500 market cap.
The S&P 500 has declined as much as 10.5% since hitting an all-time high on February 19. The Nasdaq has dropped as much as 14.7% from the all-time high it reached in December, and the Russell 2000 has declined as much as 19.5% from the all-time high it hit in November.
You wouldn't have any inkling that the 'R' word was even being mentioned, however, when looking at the forward 12-month EPS estimate. In the same time the S&P 500 has declined more than 10%, the forward 12-month EPS estimate has increased 1.0% to $277.08, according to FactSet. Given that, the forward 12-month P/E multiple has contracted to 20.3x from 22.4x.
So, how bad could a recession be?
First, there has to be one, and secondly, the depth and/or duration of any recession will ultimately dictate how bad an earnings decline will be. In modern times, the Great Recession stemming from the financial crisis is about as bad as it gets from both a depth and duration standpoint; we saw a 35.3% cut in the earnings estimate during that period. The COVID recession was worse in terms of its depth but not anywhere close in terms of its duration.
The current forward 12-month estimate isn't taking any recession risk into account, which is why it can be said that there is a lot of downside risk in it if a recession were to come to fruition.
Using the last three recessions as an approximate guide for the scope of estimate declines, we can approximate what the S&P 500 price risk might be based on a range of average historical multiples -- 5yr (19.8), 10yr (18.3), 20yr (16.2), and 25yr (16.7). The S&P 500 is currently trading at 5,630.
- A 14% cut to the EPS estimate
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| 19.8 | $238.29 | 4,718 | | 18.3 | $238.29 | 4,360 | | 16.2 | $238.29 | 3,860 | | 16.7 | $238.29 | 3,979 |
P/E MultipleEPS Est.Price- A 21% cut to the EPS estimate
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| 19.8 | $218.89 | 4,334 | | 18.3 | $218.89 | 4,006 | | 16.2 | $218.89 | 3,546 | | 16.7 | $218.89 | 3,655 |
P/E MultipleEPS Est.Price- A 35% cut to the EPS estimate
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| 19.8 | $180.10 | 3,566 | | 18.3 | $180.10 | 3,296 | | 16.2 | $180.10 | 2,918 | | 16.7 | $180.10 | 3,008 |
P/E MultipleEPS Est.Price
Briefing Analysis
The recent sell-off in the stock market hasn't felt good. It has happened quickly, not in a fearful kind of way but in a recalibration kind of way. Valuations were stretched, economic news was mostly disappointing, tariff actions cranked up, and a market hitting all-time highs roughly four weeks ago, and savoring the idea of tax cuts and deregulation, was suddenly hearing voices about a possible recession.
It may ultimately turn out to be nothing more than voices in the market's head, but if nothing else, the recession narrative has fostered the reminder that nothing good happens in terms of earnings estimates when a recession hits.
We have some historical guidelines for earnings estimate trends in prior recessions, but each recession is different. There is no recession today and there may not be a recession anytime soon -- or perhaps there will be. The market will sniff it out and price it in long before the NBER will slap a date on it.
This bull market has clearly been disrupted by the idea of a growth slowdown that could turn into something more. If you want to insulate your investment portfolio for a growth slowdown or a recession, here are several ways to do so:
- Add exposure to countercyclical sectors like health care, consumer staples, and utilities.
- Lean more on stocks of high-quality companies that have a sound financial position and a history of regularly increasing their dividend.
- Preserve capital while generating income with the purchase of government bonds and investment-grade corporate bonds.
- Allocate some money to alternative investments like precious metals.
- Tamp down individual stock risk with the purchase of mutual funds and or ETFs.
- Raise some cash to deploy in the event of a material downturn in the market.
Nobody likes the idea of a recession, but they are part of the business cycle. In the same vein, a downward revision to earnings estimates is part of a recession experience. How that translates into stock prices will have a lot to do with the severity of the recession. There isn't a recession embedded in the current earnings estimate, yet the stock market is seemingly bracing for a disruption of some kind to the estimate trend. Accordingly, stock prices have taken a hit.
-- Patrick J. O'Hare, Briefing.com
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