| | | Market Snapshot
| Dow | 42001.76 | +417.86 | (1.00%) | | Nasdaq | 17299.29 | -23.70 | (-0.14%) | | SP 500 | 5611.85 | +30.91 | (0.55%) | | 10-yr Note | +2/32 | 4.216 |
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| | NYSE | Adv 1361 | Dec 1326 | Vol 1.4 bln | | Nasdaq | Adv 1640 | Dec 2765 | Vol 8.1 bln |
Industry Watch
| Strong: Consumer Staples, Energy, Utilities, Real Estate |
| | Weak: Consumer Discretionary, Technology, Communication Services, Industrials, Financials, Materials |
Moving the Market
-- Reacting to headlines about tariffs over the weekend; Trump administration is considering broader tariffs on April 2, including a 20% universal tariff on all imports from all countries
-- Losses in mega cap stocks weighing down market
-- Safe-haven buying in Treasuries
| Closing Summary
31-Mar-25 16:30 ET
Dow +417.86 at 42001.76, Nasdaq -23.70 at 17299.29, S&P +30.91 at 5611.85
[BRIEFING.COM] The S&P 500 (+0.6%) and Dow Jones Industrial Average (+1.0%) closed at or near highs after rebounding off early session lows. The Nasdaq Composite (-0.1%) also staged a rebound after trading down as much as 2.7% at its low, but still settled slightly below Friday's close.
The initial decline in equities reflected some hesitation about Wednesday's implementation of reciprocal tariffs. Headlines over the weekend impacted investors' sentiment after reports that the Trump administration is considering broader tariffs on April 2, including a 20% universal tariff on all imports from all countries.
The news also sparked some safe-haven buying in Treasuries, which dissipated as selling eased in equities. The 10-yr yield settled one basis point lower at 4.25% after hitting 4.19% earlier. The 2-yr yield settled unchanged at 3.91% after hitting 3.85%.
Many stocks participated in the recovery efforts, leading the equal weighted S&P 500 to close 0.8% higher. Mega cap shares were largely left out of the improvement. NVIDIA (NVDA 108.38, -1.29, -1.2%), Microsoft (MSFT 375.39, -3.41, -0.9%), Amazon.com (AMZN 190.26, -2.46, -1.3%), and Tesla (TSLA 259.16, -4.39, -1.7%) were influential losers from the space.
The price action in AMZN and TSLA pinned the consumer discretionary sector in negative territory, down 0.2% from Friday. The remaining ten sectors registered gains led by consumer staples (+1.6%) and financials (+1.3%).
- Dow Jones Industrial Average: -1.3% YTD
- S&P 500: -4.6% YTD
- S&P Midcap 400: -6.5% YTD
- Russell 2000: -9.8% YTD
- Nasdaq Composite: -10.4% YTD
Reviewing today's economic data:
- March Chicago PMI 47.6 vs. 45.3 Briefing.com consensus; prior revised to 45.0 from 45.5
Looking ahead to Tuesday, market participants receive the following data:
- 9:45 ET: Final March S&P Global U.S. Manufacturing PMI (prior 49.8)
- 10:00 ET: February Construction Spending (Briefing.com consensus 0.4%; prior -0.2%), February job openings (prior 7.740 mln), and March ISM Manufacturing Index (Briefing.com consensus 49.8%; prior 50.3%)
Treasuries settle little changed
31-Mar-25 15:30 ET
Dow +352.56 at 41936.46, Nasdaq -95.38 at 17227.61, S&P +15.87 at 5596.81
[BRIEFING.COM] The S&P 500 trades just below 5,600 heading into the close.
Treasuries settled the session little changed from Friday. The 10-yr yield settled one basis point lower at 4.25% after hitting 4.19% earlier. The 2-yr yield settled unchanged at 3.91%. This leaves the 10-yr yield and 2-yr yield lower by 32 and 33 basis points, respectively, since the start of the year.
Looking ahead to Tuesday, market participants receive the following data:
- 9:45 ET: Final March S&P Global U.S. Manufacturing PMI (prior 49.8)
- 10:00 ET: February Construction Spending (Briefing.com consensus 0.4%; prior -0.2%), February job openings (prior 7.740 mln), and March ISM Manufacturing Index (Briefing.com consensus 49.8%; prior 50.3%)
S&P 500 moves up
31-Mar-25 15:05 ET
Dow +317.56 at 41901.46, Nasdaq -91.51 at 17231.48, S&P +12.56 at 5593.50
[BRIEFING.COM] The S&P 500 (+0.2%) moved further into positive territory over the last half hour, trading about 12 points higher than Friday. The Nasdaq Composite (-0.5%) remains below its prior close, weighed down by mega caps and chipmakers.
The Vanguard Mega Cap Growth ETF (MGK) trades 0.4% lower and the PHLX Semiconductor Index (SOX) is 0.9% lower.
PVH (PVH 64.61, -0.08, -0.1%) trades down ahead of its earnings report after the close.
S&P 500 climbs into green; Discover Financial leads, Moderna and Caesars weigh
31-Mar-25 14:30 ET
Dow +265.47 at 41849.37, Nasdaq -115.32 at 17207.67, S&P +5.22 at 5586.16
[BRIEFING.COM] In the last half hour the S&P 500 (+0.09%) has continued to climb higher, is now narrowly in the green after being in the red for the entirety of the session.
Briefly, S&P 500 constituents Moderna (MRNA 28.66, -2.46, -7.90%), Charles River (CRL 150.01, -5.54, -3.56%), and Caesars Entertainment (CZR 24.98, -0.69, -2.69%) pepper the bottom of the average. MRNA slips as FDA’s Peter Marks resigns, raising concerns for gene therapy sector, while CZR falls after the February Nevada gaming win numbers showed a 9.3% dip in the month to $1.217 bln.
Meanwhile, Discover Financial Services (DFS 170.91, +12.18, +7.67%) is atop the standings after reports the DoJ may approve Capital One’s (COF 178.80, +5.27, +3.04%) $35.3B acquisition of DFS despite subprime concerns.
Gold surges $36 to $3,150 as geopolitical, inflation fears weigh on markets
31-Mar-25 14:00 ET
Dow +59.85 at 41643.75, Nasdaq -231.73 at 17091.26, S&P -27.76 at 5553.18
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-1.34%) is down handily on Monday afternoon, lower by more than 230 points.
Gold futures settled $36 higher (+1.2%) at $3,150.30/oz, fueled once more by geopolitical, inflation, and trade concerns stemming from President Trump's tariff policies.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $104.21.
Goodyear Tire ticks higher today following an analyst upgrade; expects growth in 2H25 (GT)
Goodyear Tire (GT +4%) is burning some rubber today following an analyst upgrade at Deutsche Bank to "Buy" from "Hold." However, Briefing.com notes that the tire maker remains stuck in neutral as it contends with a macroeconomic landscape ripe with headwinds, from increased low-end tire imports flooding the market to uncertainty surrounding tariffs. At the same time, OEM production continues to reset to a lower base.
Nevertheless, GT is confident it can achieve certain targets despite its formidable operating environment.
- The Goodyear Forward plan is already bearing fruit. The plan centers on cost performance by streamlining its operating model to address duplication of effort and excess costs. The plan also focuses on improving GT's top-line growth. For perspective, GT has not posted yr/yr sales growth since 1Q23. Throughout 2024, GT exceeded its plan goals, resulting in $350 mln of FY24 segment operating income growth ($200 mln when backing out insurance recoveries). GT is not letting off the gas in 2025, expecting to deliver $750 mln in cost benefits this year.
- GT is reinvesting its savings into new product lines, five of which are set to launch this year. The products revolve around high-margin SKUs and premium-tier tires, which should help bolster its margin profile. Management mentioned that coverage at the premium end of the tire market is a massive opportunity and remains steadfast in making it happen. The company conceded that it has had its share of stumbles trying to extract gains in this market segment but is using these setbacks as an experience to journey ahead without losing its footing this time.
- GT aims to reach 10% segment operating income margins for the year, supported by new products and its Goodyear Forward plan.
- The current year is shaping up to be slightly more favorable than last year. On the consumer side, GT expects overall global growth in 2025, with a stronger European and Asian market. The U.S. market will likely continue to see volatility relative to imports. As such, GT expects a flat first half of the year, with growth materializing during 2H25. From a commercial standpoint, GT expects replacement demand to stabilize, progressing throughout the year. As such, it should see a similar growth cadence as its consumer business.
Plenty of uncertainty could spark unforeseen setbacks related to GT's goals this year. The first half of the year will remain muted, putting outsized pressure on the back half of the year to experience a noticeable uptick in demand for GT to hit its marks. However, GT may be in the early stages of stabilization. With its Goodyear Forward plan extracting meaningful savings benefits, the company is well-positioned for a considerable bounce once demand conditions begin to recover.
Arm Holdings plc down despite reportedly seeing its data center CPU share tripling this year (ARM)
Arm Holdings (ARM -3%) heads lower despite the company telling Reuters today that its data center CPU market share will swell from roughly 15% in 2024 to 50% by the end of this year. The report comes at a time when The Information noted today that major cloud providers, i.e., Amazon AWS (AMZN), Microsoft Azure (MSFT), and Google Cloud (GOOG), are beginning to show restraint in AI-related spending. The report comes just a few months after these hyperscalers announced or reaffirmed plans to hike their AI spending in 2025, with the total figure expected to reach as high as $320 bln, up an estimated 40% yr/yr.
However, the landscape is changing. The Information stated that some of these Big Tech companies that were quick to pour funds into AI deployments two years ago are starting to take a step back and assess their returns on investment before shelling out additional capital. Meanwhile, lingering fallout from the DeepSeek announcement in January remains. The Chinese startup shook the AI industry when it performed similarly to flagship U.S.-based AI models despite spending only a few million dollars on training. DeepSeek is open-source, like Meta AI, which can undercut the pricing on models from OpenAI and other closed-source alternatives. Enterprises are starting to look at these more seriously as a way to reduce overall AI costs.
Still, just because enterprises are potentially looking into spending less on AI does not mean that they are not steadfast in their commitment to ensuring their respective leadership positions in the industry. In fact, tilting toward cost efficiency could be a net positive for ARM.
- What separates ARM's CPU architecture from x86 alternatives developed by Advanced Micro (AMD) and Intel (INTC) is its efficiency. AI is incredibly power-hungry, which puts pressure on the industry to develop products that can do more but use less power. In February, ARM touched on the DeepSeek breakthrough, noting that it will be a net benefit for AI and ARM primarily because it drives efficiency, making it easier to run AI applications where power is constrained.
- ARM does not make chips but licenses its architecture to chip designers like NVIDIA (NVDA) and Apple (AAPL), then takes a royalty on unit sales. As such, it does not have to ramp production to meet its ambitious data center market share goal. Instead, it only needs its customers to look toward designing more power-efficient using its architecture.
- However, ARM has been looking into creating its own chips. Last month, FT.com reported that ARM was looking into launching chips this year after securing Meta Platforms (META) as one of its first customers. ARM's plans include competing with Qualcomm (QCOM), one of its largest customers, to sell data center CPUs to META. Barring any setbacks, by leaning on licensing while selling its own chips to META, ARM has the potential to upend the AI space and ultimately reach its 50% market share target.
An uncertain economic environment may be dampening the mood around hyperscalers' appetites for AI spending. However, ARM is in an attractive position, touting considerable efficiency advantages over alternative CPU architecture to support a potential run toward cementing its 50% market share in the data center CPU space.
Rocket takes another bite at the M&A apple, weeks after Redfin deal, it's now buying Mr. Cooper(RKT)
Rocket Companies (RKT -7%) is at it again. Just three weeks after announcing a deal to acquire Redfin (RDFN -10%), the Detroit-based fintech platform (mortgage, real estate, personal finance) announced today that it will acquire Mr. Cooper (COOP +17%) in an all-stock transaction for $9.4 bln in equity value. Mr. Cooper is the largest home loan servicer in the US. The deal has been approved by both boards and is expected to close in Q4.
- What's interesting is that COOP is much larger than RKT. COOP shareholders will receive 11 RKT shares for each share of COOP. This represents a $143.33 value based on Friday's close, for a 37% premium. Upon completion RKT shareholders will own 75% of the combined company on a pro forma that includes the Redfin transaction, while Mr. Cooper shareholders will own approximately 25%.
- Rocket already has a good size servicing business, but clearly adding COOP with turbocharge that effort. The combined company will service more than $2.1 trillion in loan volume, or one in every six mortgages in America. Just so people understand, the bank where you send your mortgage payment to usually does not hold the actual loan. Rather, for a fee, the servicer collects mortgage payments and passes funds to investors, tax authorities, insurance companies etc.
- A key goal of the combination for Rocket is to accelerate its origination-servicing recapture flywheel. Rocket Mortgage notes that it has been #1 in mortgage origination 12 times, driving the company's 83% recapture rate, which is triple the industry average. With a significantly larger servicing portfolio, Rocket is poised to benefit even more from its industry-leading retention and recapture rates. Also, Rocket will gain nearly 7 mln additional clients and 150 mln annual customer interactions.
- The company estimates that the transaction is expected to generate $100 mln in additional pre-tax revenue from higher recapture rates and attaching Rocket's title, closing and appraisal services to Mr. Cooper's existing originations. In addition, Rocket projects $400 mln in pre-tax cost savings from streamlining operations, corporate expense and technology investments. Rocket sees servicing as a critical pillar of homeownership, alongside home search and mortgage origination.
We see the crown jewel for Rocket as being COOP's massive amount of mortgage servicing clients. We see the cross-selling benefit with Rocket's other products like mortgage orginiations, title, closing and appraisal services. Also, Redfin will be a good top-of-funnel provider of homebuyer clients that can filter down to originating and servicing all those eventual mortgages when they make a purchase.
Not surprisingly, RKT is trading lower on the deal. In addition to the premium being paid, we suspect investors are not thrilled about this being an all-stock deal. They are likely also worried about buying a company with exposure to a struggling real estate market and a stretched consumer. There are also concerns about economic uncertainty, tariffs, reductions in the federal workforce etc. Also, home prices remain unaffordable for many and deals are falling through more often. We are a bit surprised COOP agreed to a deal, given its steady financial performance and uptrending stock price.
Dutch Bros is sluggish today as its reiterated FY25 comp forecast triggers disappointment (BROS)
Dutch Bros (BROS -6%) remains in need of a pick-me-up after its reiterated long-term growth strategy and Q1 update last night during its Investor Day presentation fell flat. Since spiking to all-time highs in February following Q4 results, shares of the coffee chain, predominately located on the West Coast, have tumbled by roughly 30%. Much of the decline can be attributed to the broader market weakness, which can have an outsized adverse impact on stocks trading at frothy multiples, such as BROS, which was carrying a forward earnings multiple of 135x following Q4 results.
- One item that stood out from Investor Day was BROS reaffirming its same-store sales growth target of +2.0-4.0% despite the figure increasing by +4.6% through March 24. Given how much the company exceeded its comp goal for the previous year, exceeding forecasts by over 100 bps, perhaps the market was looking for BROS to raise its annual forecast, particularly given how it is already tracking ahead of its projection for FY25.
- Another piece to today's selling pressure could be the general sentiment about the economy. BROS did not provide any updates on input prices. However, the coffee market has been volatile, with tariffs potentially increasing volatility further and upping input costs. BROS has taken some price to offset inflation at the beginning of the year.
- If it is forced to continue on this path, demand could begin to take a hit, especially since BROS specializes in more premium, highly customized beverages. Rival Starbucks (SBUX) has continued to see a shift into lower-priced beverages lately as consumers grapple with stubborn inflationary pressures.
Other than this, there were not many surprises with BROS's long-term financial targets, reiterating its annual revenue growth rate of around +20%, underpinned by annual new shop growth in the mid-teens. The company also anticipates annual adjusted EBITDA growth of over 20% above its annual sales growth rate target. Another item worth noting was BROS's decision to launch a line of Dutch Bros packaged coffee products to be sold in retail outlets. The announcement aligns with the company's plan to roll out an expanded food program, trying to reach more individuals to raise brand awareness.
Nevertheless, given its still-rich valuation, trading at around 92x forward earnings, considerably above SBUX, which commands a 30x forward earnings multiple, BROS likely needed to step up its comp outlook for the year following its solid start to Q1. Furthermore, the economy is currently generating apprehension among investors who are worried about a material downturn in consumer spending. While coffee tends to top consumers' list of daily priorities, like SBUX is witnessing, people may be finding ways to consume it less expensively. Similarly, at-home coffee consumption could be on the rise. Keurig Dr Pepper (KDP) noted last month that at-home coffee trends improved sequentially in Q4, with December marking the strongest month of the quarter. As such, CEO Christine Barone, who took over on January 1, 2024, could be staring at a roadblock to her comprehensive turnaround plan in the near future.
lululemon posts strong Q4 international growth; Soft U.S. sales and tariffs weigh on outlook (LULU)
The momentum from a strong holiday shopping season carried into January for lululemon athletica (LULU), enabling the activewear company to cruise past the upwardly revised EPS and revenue guidance it provided on January 13. However, when the calendar flipped to February, sales began to cool as customers reined in spending amid waning consumer confidence levels. Uncertainties around tariff policies are adding to an already difficult and complex environment for retailers, leading LULU to issue cautious guidance for Q1 and FY26 that fell short of expectations.
- The intensifying macro headwinds come as LULU is attempting to turn its U.S. business around after some merchandising missteps led to a disappointing 2024. LULU created a new reporting structure within its product team, enabling faster decision making within its merchandising teams, and refreshed product lines that were lacking new colors, prints, and patterns. Positive signs emerged last quarter when U.S. revenue was flat qtr/qtr, indicating a stabilization in demand, but the souring macro climate has prevented LULU from building off that recovery.
- In Q4, revenue increased by only 1% in the U.S. due to slower traffic. Adding to the disappointment, LULU said it's only anticipating modest U.S. revenue growth in 2025, even as it ramps up new products and brand activations. The company stated that it's seeing a strong response to new products, so its outlook would likely be even softer without the contributions from the launches. Looking ahead, LULU will build upon the newness and innovations this year with the introduction of BeCalm yoga wear, Glow Up technical franchise, and Mile Maker men's running franchise, among others.
- Staying true to recent form, the international business continued to shine in Q4 as comparable sales soared by 22% in constant currency. LULU has rapidly expanded its presence in China, where comps jumped by 27% in constant currency, indicating that brand awareness and popularity is still on the rise there. Unlike the Americas region, where LULU utilizes a more traditional marketing model, the strategy in China is more localized. The company looks to foster a strong relationship with a community through in-store experiences, local events, and wellness initiatives.
- Despite operating in a highly promotional retail environment, LULU has protected its brand, refraining from increasing markdown activity in order to drive sales. Accordingly, gross margin increased by 100 bps yr/yr to 60.4%, driven by lower markdowns, improved shrink, and lower product costs.
Strong holiday sales, robust international growth, and improved product margins allowed LULU to exceed Q4 expectations, but U.S. sales are showing signs of sluggishness again amid escalating macro headwinds, including tariffs. The company plans to combat these challenges by enhancing product innovation and newness, strengthening its market positioning, but it faces an uphill climb given the increasing consumer hesitancy.
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