Market Snapshot
| Dow | 41581.00 | -260.32 | (-0.62%) | | Nasdaq | 17504.11 | -304.55 | (-1.71%) | | SP 500 | 5614.66 | -60.46 | (-1.07%) | | 10-yr Note | +2/32 | 4.286 |
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| | NYSE | Adv 969 | Dec 1688 | Vol 1.0 bln | | Nasdaq | Adv 1509 | Dec 2762 | Vol 6.4 bln |
Industry Watch
| Strong: Energy, Health Care |
| | Weak: Communication Services, Consumer Discretionary, Technology, Consumer Staples |
Moving the Market
-- Returning to downtrend after short reprieve
-- Outsized declines in mega cap shares
-- Increased geopolitical tensions after reports of an Israeli airstrike on Gaza
-- Digesting slate of economic data
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Closing Summary
18-Mar-25 16:20 ET
Dow -260.32 at 41581.00, Nasdaq -304.55 at 17504.11, S&P -60.46 at 5614.66
[BRIEFING.COM] The stock market closed with losses across the board. The major indices settled off session lows with declines ranging from 0.6% to 1.7%.
The downside move follows two consecutive winning sessions for the the S&P 500 (-1.1%) and Nasdaq Composite (-1.7%) and the gains haven't been fully erased. The S&P 500 and Nasdaq Composite are still 1.7% and 1.2% higher, respectively, than Thursday's close.
Mega cap stocks led the downturn today with names like Tesla (TSLA 225.31, -12.70, -5.3%), NVIDIA (NVDA 115.52, -4.00, -3.4%), Meta Platforms (META 582.36, -22.54, -3.7%), and Alphabet (GOOG 162.67, -3.90, -2.3%).
Investors were digesting a batch of headlines related to NVIDIA amid its GTC event, but shares didn't seem fazed by the news. Meanwhile, Alphabet announced a $32 billion cash acquisition of Wiz, Inc., a cloud security platform company.
Corning upgrades its Springboard plan, raises its Q1 guidance; bucks broader market pullback (GLW)
The glass is half full at Corning (GLW +1%) following its upgraded high-confidence Springboard plan and raised Q1 guidance. The specialty glass and advanced optics manufacturer outlined its Springboard plan at the outset of FY24, pursuing growth of $8 bln in annualized sales run rate by the end of 2028. From this initial plan, GLW formulated a non-risk-adjusted goal, which required perfect timing of secular trends, successful adoption of GLW's technology, and volume growth across all of its businesses of $5 bln in annualized sales by the end of 2026.
To better ground expectations, GLW outlined a more attainable plan, what it dubbed its high confidence plan, which included adding over $3 bln in annualized sales and reaching operating margins of 20% by the end of 2026. At the end of Q4, GLW had already added $2.4 bln to its annualized sales run rate from its Springboard base, making it more likely that the company would step up its high-confidence plan.
- Today, GLW now expects to add over $4 bln in annualized sales while still registering operating margins of 20% by the end of next year. The higher expected sales should accompany stronger EPS and cash flow than initially anticipated at the start of its Springboard plan. Additionally, GLW pushed its non-risk-adjusted goal to $6 bln.
- There are favorable demand trends underneath GLW's upgraded plan. In Optical Communications, which represented a third of total FY24 revenue, heightened adoption of Gen AI products inside data centers is fueling rapid growth. This business centers on fiber optic cables, vital components in data centers, as they enable high-speed, low-loss data transmission, which is pertinent to AI and cloud computing.
- Meanwhile, in Display Technologies, which comprised just over a quarter of FY24 revenue, GLW noted that it successfully hiked prices during the back half of last year to help drive profitability amid a weaker yen environment. GLW's manufacturing facilities are located across Asia, making it critical for the company to hedge its yen exposure to maintain a stable dollar net income. On that note, GLW stated that it is on tract to record net income of $900-950 mln this year, paving the way for 25% net income margins.
- GLW also announced the launch of its new Solar Market-Access Platform. With this new platform, GLW anticipates more than doubling its revenue from around a $1 bln revenue stream last year to a $2.5 bln stream by 2028. Factors behind this goal include GLW commercializing new wafer products that already boast committed customer agreements, leading to an estimated positive impact on performance in 2H25.
Against the backdrop of macroeconomic uncertainty and ailing consumer sentiment, GLW's upgraded high-confidence Springboard plan and raised Q1 guidance, anticipating EPS near the high end of its $0.48-0.52 forecast and revs to exceed its prior $3.6 bln estimate, is refreshing, allowing its stock to buck the current market pullback today. There are still many things that need to go right for GLW to reach its more ambitious outlook, including stabilized consumer electronics and automotive markets. However, its upgraded plan is an encouraging step toward that goal.
Costco reportedly seeks price reductions from Chinese suppliers in effort to protect margins (COST)
By keeping prices low and providing a compelling value proposition by offering products in bulk, Costco (COST) has created a strong competitive advantage that has underpinned consistent market share gains in the retail space. With the implementation of tariffs, particularly on China, Mexico, and Canada, COST's ability to keep prices low has become far more challenging. As such, CEO Ron Vachris is reaching out to the company's mainland China suppliers in an effort to persuade them to cut prices rather than raise prices, according to Financial Times.
- Although lowering prices in the face of tariffs might seem counterintuitive, this strategy has some advantages that could help COST's suppliers offset the impact of higher cost of goods due to tariffs. For example, lower prices tend to lead to greater sales volume, which produces economies of scale and steady profit margins. Additionally, keeping prices low while competitors raise prices should enable COST to gain more market share -- a long-term positive for its suppliers.
- With approximately 20-30% of its products originating from China, across several product categories such as electronics, furniture, apparel, and some private-label Kirkland Signature products, the concern is that higher cost of goods resulting from tariffs will trickle down to lower margins for COST. The company's gross margin has remained stable over the past four quarters in the 12-13% range.
- Relative to other big box retailers like Walmart (WMT) and Target (TGT), COST has far less exposure to China. It's estimated that approximately 70-80% of WMT's merchandise is sourced from Chinese suppliers, while approximately 35% of TGT's products are imported from China. It's also worth noting that COST's customer base is generally more affluent and better equipped to handle an upswing in prices.
- COST's low-margin, high-volume business also allows it to keep prices lower than most competitors, and its membership model provides another substantial revenue stream to insulate the company from inflationary pressures. Importantly, COST already implemented its price increase last September, so the company will avoid trying to push that through during this next wave of inflation. During inflationary periods, COST's membership renewal rates have remained very healthy, above the 90% rate.
- It's also worth noting that COST's stock has performed quite well during periods of high inflation. During the supply chain-induced inflation surge in 2021-2022, COST gained 21%, compared to losses of 2% and 14% for WMT and TGT, respectively.
COST's strategy to ask its Chinese suppliers to lower prices to mitigate the impact of tariffs could help it to maintain its low-price/value reputation, driving incremental share gains. However, the move could also strain relationships with suppliers operating on thin margins, potentially leading to some supply chain issues.
Steel Dynamics trades higher despite downside Q1 guidance; seeing spot price improvements (STLD)
Steel Dynamics (STLD +1%) tends to provide EPS guidance around midway through the last month of every quarter. This steel producer maintained that routine last night. Unfortunately, the Q1 EPS guidance at $1.36-1.40 was a good bit below analyst expectations. This was STLD's fourth consecutive quarterly downside guidance, which is not a trend we like to see. In fairness, cold weather and the holidays tend to make Q1 a seasonally slower quarter, but this was still a letdown.
- STLD said it expects Q1's steel operations to be stronger than sequential Q4 results. Increased shipments are expected to more than offset some metal margin compression. STLD noted that contractual steel pricing lagged recent spot price improvements, which will be realized in the coming months. In terms of end markets, the energy, non-residential construction, automotive, and industrial sectors continue to lead demand.
- Its metals recycling operations are expected to be higher in Q1 than what we saw in Q4, based on stronger pricing and stable volumes for ferrous and nonferrous materials. However, its steel fabrication results are expected to be sequentially lower in Q1, based on seasonally lower shipments and less than a 5% decline in realized pricing. The silver lining is that the pace of order activity increased in Q1 and the order backlog improved, extending well into Q3.
- Importantly, the company also provided an update on its new facility in Sinton, Texas. The Flat Roll Division operated at production levels in excess of 90% in Q1. While not yet profitable, STLD sees a clear path to profitability in Q2 at its Sinton operations.
- Investors are watching the Sinton news closely. This is STLD's third flat rolled plant (Butler and Columbus are the others). This new mill is seen as transformational not only because it will boost STLD's overall production capacity. The key point is that it's designed to accommodate product size and quality capabilities beyond those of existing mini-mills, competing with integrated steel mills and foreign competition.
What is interesting is that the stock is ticking higher despite the downside guidance. Investors do not seem too worried as STLD tends to be conservative on guidance. Also, given the unease in the macro environment where customers are wary about spending, the guidance could have been worse. The steel tariffs are good for STLD as its comment about spot prices rising is a signal of that tricking down for STLD's benefit.
On a final note, Nucor (NUE) also tends to guide around the middle of the last month each quarter. We are a bit surprised that NUE did not guide this morning, but it should be soon.
Alphabet slides on broader market selling pressure and its acquisition of Wiz for $32 bln (GOOG)
Alphabet (GOOG -3%) slides to six-month lows as it is swept up in the broader sell-off today and encounters a relatively adverse reaction its announcement to acquire cybersecurity startup Wiz for $32 bln. Midway through last year, Wiz said no to Google's initial offer, which, at the time, reached $23 bln. The offer would have already made it the tech firm's largest ever, let alone stepping it up to $30 bln.
Last year, instead of being absorbed by Google, Wiz was seeking to go public while aiming to achieve $1.0 bln in annualized recurring revenue (ARR) by the end of 2025. Furthermore, regulatory barriers were elevated, especially surrounding Google, which dealt with an antitrust ruling finding that the company illegally maintained a monopoly on search. That is not to say that regulatory scrutiny has died down. In January, the Department of Justice under the Trump administration sued to block Hewlett Packard Enterprise's (HPE) $14 bln acquisition of Juniper Networks (JNPR), illustrating a potentially tougher stance on Big Tech M&A than the markets may have thought. Google could encounter similar hurdles when purchasing Wiz.
- However, there are several reasons to like Google's purchase of Wiz. Unlike other cybersecurity firms, Wiz focuses exclusively on cloud security. This tailored approach has proved a compelling competitive advantage as Wiz already touted $500 mln in ARR last July when Google was initially seeking to purchase the firm despite being founded just four years earlier. In fact, Wiz stated in late 2022 that it was the fastest startup to scale to $100 mln in ARR.
- Wiz already partners with prominent hyperscalers, such as Amazon (AMZN) and Microsoft (MSFT), which is a testament to its cybersecurity technology. Given how fast Wiz has been expanding its revenue, Google is likely feeling squeezed to get a deal done now before valuations become even more stretched. Wiz was reportedly valued at around $16 bln last year.
- The addition of Wiz would also immediately make Google a meaningful contender in the cybersecurity market. Furthermore, given Google's R&D and other proprietary technology, including AI, Wiz's tools could be enhanced to unlock further growth.
Still, at a 32x estimated ARR valuation, Google is accepting a hefty premium associated with acquiring Wiz. Additionally, regulatory hurdles may ultimately lead to the deal falling through. Lastly, given the ongoing market pullback, investors may continue to avoid Google until economic uncertainty eases, keeping selling pressure elevated.
Geopolitical angst was also cited as a factor driving today's downside move, yet price action in commodities and Treasuries didn't reflect that. Treasuries are seen as a safe-haven during geopolitical unrest, yet the 10-yr yield, which dropped three basis points to 4.28%, and the 2-yr yield, which dropped one basis point to 4.04%, made modest moves.
Oil prices often rise as tensions increase in the Middle East due to concerns about supply disruptions, but WTI crude oil futures dropped 1.2% to $66.78/bbl.
President Trump's call with Russian President Putin also garnered a muted response from stocks and bonds. White House Press Secretary Karoline Leavitt issued a read out of the call, saying "leaders agreed that the movement to peace will begin with an energy and infrastructure ceasefire, as well as technical negotiations on implementation of a maritime ceasefire in the Black Sea, full ceasefire and permanent peace."
This morning's economic data was mixed with housing starts increasing in February while import and export prices reflected an inflationary shift in the year-over-year readings.
- Dow Jones Industrial Average: -1.7% YTD
- S&P 500: -4.5% YTD
- S&P Midcap 400: -5.6% YTD
- Nasdaq Composite: -9.4% YTD
- Russell 2000: -8.1% YTD
Reviewing today's economic data:
- February Housing Starts 1.501 mln (Briefing.com consensus 1.385 mln); Prior was revised to 1.350 mln from 1.366 mln, February Building Permits 1.456 mln (Briefing.com consensus 1.450 mln); Prior was revised to 1.473 mln from 1.483 mln
- The key takeaway from the report is that starts activity was bolstered by the return of better weather, which was reflected in the 18.3% increase in housing starts in the South region (they were down 23.0% in January).
- February Export Prices 0.1%; Prior 1.3%
- February Export Prices ex-ag. 0.1%; Prior 1.5%
- February Import Prices 0.4%; Prior was revised to 0.4% from 0.3%
- February Import Prices ex-oil 0.3%; Prior 0.1%
- February Industrial Production 0.7% (Briefing.com consensus 0.2%); Prior was revised to 0.3% from 0.5%, February Capacity Utilization 78.2% (Briefing.com consensus 77.7%); Prior was revised to 77.7% from 77.8%
- The key takeaway from the report is that there was a solid increase in manufacturing output that was led by an 8.5% jump in the index for motor vehicles and parts, which likely had some tariff frontrunning involved. Motor vehicle assemblies increased 11.5% month-over-month to a seasonally adjusted annual rate of 10.35 million.
Looking ahead to Wednesday, market participants receive the following data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 11.2%)
- 10:30 ET: Weekly crude oil inventories (prior +1.45 mln)
- 16:00 ET: January Net Long-Term TIC Flows (prior $72.0 bln)
Also, the March FOMC decision is out at 2:00 ET.
Treasuries settle with gains
18-Mar-25 15:35 ET
Dow -222.01 at 41619.31, Nasdaq -277.23 at 17531.43, S&P -55.57 at 5619.55
[BRIEFING.COM] The three major indices remain pinned near session lows heading into the close.
Treasuries settled the session with gains. The 10-yr yield dropped three basis points to 4.28% and the 2-yr yield dropped one basis point to 4.04%.
Looking ahead to Wednesday, market participants receive the following data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 11.2%)
- 10:30 ET: Weekly crude oil inventories (prior +1.45 mln)
- 16:00 ET: January Net Long-Term TIC Flows (prior $72.0 bln)
Also, the March FOMC decision is out at 2:00 ET.
Mega-cap stocks continue to underperform
18-Mar-25 14:55 ET
Dow -199.67 at 41641.65, Nasdaq -234.15 at 17574.51, S&P -48.39 at 5626.73
[BRIEFING.COM] The major indices remain underwater, trading in a lateral fashion for most of the session after some more concerted selling interest following today's open.
Mega-cap stocks continue to underperform, which is the main drag on the market cap-weighted indices.
The market cap-weighted S&P 500 is down 0.9%, whereas the equal-weighted S&P 500 is down 0.5%. In other words, there is broad-based weakness today, yet it is more concentrated in the market's largest issues.
S&P 500 falls 1% as consumer discretionary stocks slide; Discover Financial gains 3.5%
18-Mar-25 14:30 ET
Dow -266.49 at 41574.83, Nasdaq -301.11 at 17507.55, S&P -56.50 at 5618.62
[BRIEFING.COM] The S&P 500 (-1.00%) is in the middle of the major averages, down about 56 points.
Briefly, S&P 500 constituents Super Micro Computer (SMCI 39.27, -2.67, -6.37%), Royal Caribbean (RCL 207.00, -12.41, -5.66%), and Chipotle Mexican Grill (CMG 48.02, -1.63, -3.28%) dot the bottom of the standings. RCL and CMG are among some of the worst performing consumer discretionary stocks today, this while the S&P consumer discretionary sector posts a second-worst -1.82% loss on the session.
Meanwhile, Discover Financial Services (DFS 158.28, +5.29, +3.46%) is today's top performer, recovering some of yesterday's cautious sentiment around the Capital One (COF 168.56, +3.30, +2.00%) deal.
Gold surges to $3,040 as weaker dollar and equity losses boost safe-haven demand
18-Mar-25 14:00 ET
Dow -275.54 at 41565.78, Nasdaq -300.58 at 17508.08, S&P -61.51 at 5613.61
[BRIEFING.COM] The Nasdaq Composite (-1.69%) remains today's top lagging major average with about two hours to go in the session.
Gold futures settled $34.70 higher (+1.2%) to $3,040.80/oz, as a modestly weaker dollar and losses in equities on top of tariff concerns drove demand for the safe-haven asset on Tuesday.
Currently, the U.S. Dollar Index is down about -0.2% to $103.20.
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