| | | Market Snapshot
| Dow | 42322.75 | +271.69 | (0.65%) | | Nasdaq | 19112.32 | -34.49 | (-0.18%) | | SP 500 | 5916.93 | +24.35 | (0.41%) | | 10-yr Note |
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| | NYSE | Adv 1755 | Dec 946 | Vol 1.0 bln | | Nasdaq | Adv 2526 | Dec 1852 | Vol 10 bln |
Industry Watch
| Strong: Utilities, Real Estate, Industrials, Financials, Consumer Staples, Materials, Health Care |
| | Weak: Consumer Discretionary, Technology, Communication Services |
Moving the Market
-- Resilience to selling acting as support for equities
-- Responding favorably to drop in yields
-- Digesting mixed corporate news
-- Losses in mega caps weighing down Nasdaq
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Closing Summary
15-May-25 16:15 ET
Dow +271.69 at 42322.75, Nasdaq -34.49 at 19112.32, S&P +24.35 at 5916.93
[BRIEFING.COM] The stock market exhibited mixed action today. The market started the session with losses at the index level, but the Dow Jones Industrial Average (+0.7%) and the S&P 500 (+0.4%) closed with gains.
There was an emerging view that stocks are due for a period of consolidation after a big run (the S&P 500 is up 6.3% in May), but that still hasn't materialized in a meaningful way. The continued resilience seen this morning acted as its own upside catalyst as the session progressed.
The drop in market rates also contributed to the underlying positive bias. The 10-yr yield settled seven basis points lower at 4.46%, and the 2-yr yield settled eight basis points lower at 3.97%. This price action was driven in part by a cool Producer Price Index report for April (-0.5%; Briefing.com consensus 0.3%). It was just one report, though, on an economic data-heavy day.
The calendar also included April reports for retail sales, and industrial production; weekly initial and continuing jobless claims; and May reports for the Philadelphia Fed Index, Empire State Manufacturing Survey, and NAHB Housing Market Index that, collectively, were mixed relative to expectations.
The Nasdaq Composite (-0.2%) lagged its peers through the entire session, reflecting pressure from losses in some mega caps.
Dow component UnitedHealth (UNH 274.35, -33.66, -10.9%) was another notable laggard following a Wall Street Journal report that the DOJ is investigating the company for possible criminal Medicare fraud. UNH said it has not been informed of any such investigation.
Walmart (WMT 96.35, -0.48, -0.5%) was also in the headlines after it topped the quarterly consensus EPS estimate, yet its FY26 EPS guidance was conservative-looking relative to the consensus estimate, and the company warned that consumers are likely to see higher prices starting later this month and certainly in June due to the tariffs.
- S&P 500: +0.6% YTD
- Dow Jones Industrial Average: -0.5% YTD
- Nasdaq Composite: -1.0% YTD
- S&P Midcap 400: -2.1% YTD
- Russell 2000: -6.1% YTD
Reviewing today's economic data:
- The Producer Price Index for final demand decreased 0.5% month-over month in April (Briefing.com consensus 0.3%). That was the good news. The bad news is that the prior month was revised up to unchanged from a 0.4% decline. The Producer Price Index for final demand, less foods and energy, decreased 0.4% month-over-month (Briefing.com consensus 0.3%), again good news, but the bad news (again) is that the prior month was revised up to 0.4% from -0.1%. On a year-over-year basis, the index for final demand was up 2.4%, versus an upwardly revised 3.4% (from 2.7%) in March, while the index for final demand, less foods and energy, was up 3.1%, versus an upwardly revised 4.0% (from 3.3%) in March.
- The key takeaway from the report is that the big drop in the index for final demand was driven by a 0.7% decline in the index for final demand services (the largest decline since December 2009). Over 40% of that 0.7% decline was driven by margins for machinery and vehicle wholesaling, which dropped 6.1%. That suggests wholesalers were likely absorbing some tariff impacts, which is good for the end customer but not necessarily for earnings.
- Total retail sales increased 0.1% month-over-month in April (Briefing.com consensus 0.2%) following an upwardly revised 1.7% (from 1.4%) in March. Excluding autos, retail sales were also up 0.1% month-over-month (Briefing.com consensus 0.5%) following an upwardly revised 0.8% increase (from 0.5%) in March.
- The key takeaway from the report is that the pace of spending on goods decelerated in April, speaking to the tariff frontrunning evident in the strong sales for March and reflecting the consumer's cautious mindset following "Liberation Day" and the stock market's volatility.
- Initial jobless claims for the week ending May 10 were unchanged at 229,000 (Briefing.com consensus 226,000), while continuing jobless claims for the week ending May 3 increased by 9,000 to 1.881 million.
- The key takeaway from the report is that the initial jobless claims filings -- a leading indicator -- still reflect an otherwise solid labor market that will remain supportive of consumer spending, albeit perhaps at a slower pace in the face of higher prices.
- The May Empire State Manufacturing Index checked in at -9.2 (Briefing.com consensus 1.0) versus -8.1 in April. The May Philadelphia Fed Index checked in at -4.0 (Briefing.com consensus -6.0) versus -26.4 in March.
- The key takeaway from these regional manufacturing reports is that the breakeven point between contraction and expansion is 0.0, so each reflects a contraction in activity in May versus April, somewhat faster for the Empire State report and somewhat slower for the Philadelphia Fed Index.
- Total industrial production was flat month-over-month in April (Briefing.com consensus 0.3%) following an unrevised 0.3% decline in March. The capacity utilization rate dipped to 77.7% (Briefing.com consensus 77.9%) from an unrevised 77.8% in March. Total industrial production increased 1.5% yr/yr while the capacity utilization rate was 1.9 percentage points below its long-run average.
- The key takeaway from the report is that manufacturing output was weak. Excluding motor vehicles and parts, manufacturing output still decreased 0.3%, presumably with the tariff uncertainty holding back total output.
Looking ahead to Friday, market participants receive the following economic data:
- 8:30 ET: April Housing Starts (Briefing.com consensus 1.383 mln; prior 1.324 mln) and Building Permits (Briefing.com consensus 1.450 mln; prior 1.481 mln), April Import Prices (prior -0.1%), Import Prices ex-oil (prior 0.1%), Export Prices (prior 0.0%), and Export Prices ex-agriculture (prior -0.1%)
- 10:00 ET: Preliminary May University of Michigan Consumer Sentiment (Briefing.com consensus 55.0; prior 52.2)
- 16:00 ET: March net Long-Term TIC Flows (prior $112.0 bln)
Treasuries settle sharply higher
15-May-25 15:30 ET
Dow +259.29 at 42310.35, Nasdaq -95.46 at 19051.35, S&P +15.88 at 5908.46
[BRIEFING.COM] The S&P 500 is about 15 points, or 0.3% higher, heading into the close.
The 10-yr yield settled seven basis points lower at 4.46% and the 2-yr yield settled eight basis points lower at 3.97%.
Looking ahead to Friday, market participants receive the following economic data:
- 8:30 ET: April Housing Starts (Briefing.com consensus 1.383 mln; prior 1.324 mln) and Building Permits (Briefing.com consensus 1.450 mln; prior 1.481 mln), April Import Prices (prior -0.1%), Import Prices ex-oil (prior 0.1%), Export Prices (prior 0.0%), and Export Prices ex-agriculture (prior -0.1%)
- 10:00 ET: Preliminary May University of Michigan Consumer Sentiment (Briefing.com consensus 55.0; prior 52.2)
- 16:00 ET: March net Long-Term TIC Flows (prior $112.0 bln)
Stocks build on May gains
15-May-25 15:05 ET
Dow +244.19 at 42295.25, Nasdaq -42.20 at 19104.61, S&P +21.42 at 5914.00
[BRIEFING.COM] The major equity indices are sitting on big gains this week, adding to a winning start to May.
The Dow Jones Industrial Average is 2.6% higher than last Friday, and 4.0% higher since April. The S&P 500 sports a 4.5% gain this week, and a 6.2% gain since the start of the month. The Nasdaq Composite is 6.5% higher than Friday's close, and 9.5% higher than its final April close.
Many stocks have participated in the gains this week and month, aided by increased buying in mega caps. The Vanguard Mega Cap Growth ETF (MGK) is 9.5% higher in May and the equal-weighted S&P 500 is 5.3% higher in May.
S&P 500 up 0.3% as Steris jumps 8.4%; Fiserv drops on weak outlook
15-May-25 14:30 ET
Dow +174.27 at 42225.33, Nasdaq -42.53 at 19104.28, S&P +15.56 at 5908.14
[BRIEFING.COM] The S&P 500 (+0.26%) is in second place on Thursday afternoon.
Briefly, S&P 500 constituents Steris (STE 246.49, +18.99, +8.35%), Dollar General (DG 92.01, +4.31, +4.91%), and Viatris (VTRS 8.81, +0.39, +4.63%) dot the top of the standings. STE moves higher after earnings out overnight beat expectations and guidance came in ahead of estimates.
Meanwhile, Fiserv (FI 160.53, -29.33, -15.45%) is the worst performer in the average after management comments from its appearance at a JPM Conference highlighted slowing Clover growth and a weak spending outlook.
Gold rebounds 1.2% to $3,188 as soft PPI data and geopolitical jitters fuel safe-haven demand
15-May-25 14:00 ET
Dow +136.55 at 42187.61, Nasdaq +5.34 at 19152.15, S&P +19.31 at 5911.89
[BRIEFING.COM] The Nasdaq Composite (+0.03%) has returned back to flat lines in recent trading, up just 5 points on the day.
Gold futures settled $38.30 higher (+1.2%) at $3,188.30/oz, rebounding from earlier losses as weaker-than-expected U.S. producer price data fueled bets on a more dovish Fed and lower long-term rates. The move was also supported by safe-haven demand amid lingering geopolitical concerns, despite some easing in U.S.-China trade tensions.
Meanwhile, the U.S. Dollar Index is now down about -0.1% to $100.93.
Deere's Precision Ag and pricing power fuel big Q2 beat, but guidance revision limits gains (DE)
While facing stiff headwinds like lower farm incomes and dealer destocking, Deere (DE) crushed analysts' muted 2Q25 EPS expectations, driven by effective cost management, lower production costs, and favorable price realization across segments. Although revenue dropped 18% yr/yr to $11.17 bln, due to lower shipment volumes, reflecting weaker demand in farming and construction markets, the decline was less severe than anticipated and marked an improvement relative to the past three quarters.
The sizable EPS beat, and stabilizing sales are encouraging signs -- especially after competitor AGCO (AGCO) delivered a beat-and-raise earnings report on May 1 -- but DE also reduced the low end of its FY25 net income guidance to $4.75 bln from $5.0 bln (high end remained at $5.5 bln). This adjustment reflects caution about the persistence of challenging market conditions, and aligns with DE's industry outlook for FY25, which anticipates a decline of about 30% for large ag and a decline of roughly 10-15% for small ag & turf.
- The Production & Precision Agriculture segment, which caters to farmers, manufacturing combines, loaders, and large-size tractors, generated net sales of $5.23 bln, down 21% yr/yr, driven by lower shipment volumes. While operating margin contracted by 310 bps yr/yr to 22.0%, on a qtr/qtr basis, operating margin improved significantly, rising from 11.0% in 1Q25. This sequential improvement was fueled by lower production costs, reduced SA&G expenses, and better price realization, which partially offset the negative impact of sales mix and currency effects.
- Small Agriculture & Turf delivered net sales of $2.99 bln, a 6% yr/yr decline, marking a major improvement from recent quarters. For context, in Q1, net sales for this segment had declined by 28% year-over-year. The improvement in Q2 was driven by better price realization and a more favorable sales mix, partially offsetting the impact of lower shipment volumes. Notably, this segment was the only one to see its operating margin improve on a yr/yr basis, rising to 19.2% from 17.9% in 2Q24. The margin expansion was fueled by lower production costs, reduced warranty expenses, and effective price realization.
- Meanwhile, Construction & Forestry experienced a steep revenue decline of 23% yr/yr, with Q2 net sales totaling $2.95 bln. This segment has continued to lag behind others, primarily due to lower shipment volumes, which reflect weaker demand in both construction and forestry markets, driven by economic fluctuations and higher interest rates. While the segment's operating margin improved substantially on a qtr/qtr basis -- from 3.3% in Q1 to 12.9% in Q2 -- this was still significantly below the 17.4% margin reported in the year-earlier period.
DE's Q2 earnings report presents a mixed picture of resilience and caution amid a challenging environment for the agricultural and construction equipment sector. Despite DE's cautious tone, as illustrated by its reduced FY25 net income guidance, the blowout EPS result and the relatively improved sales performance in Q2 suggest emerging green shoots, particularly in the Small Agriculture & Turf segment, which could provide a buffer against broader industry headwinds.
Cisco Systems makes a strong move on earnings as webscale customers keep buying at a good clip
Cisco Systems (CSCO +5%) is trading nicely higher after reporting EPS upside for Q3 (Apr). Revenues grew 11.4% yr/yr to $14.15 bln, its first double-digit yr/yr growth in the past seven quarters. It also provided upbeat guidance for Q4 (Jul). Notably, Cisco received AI infrastructure orders from webscale customers in excess of $600 mln in Q3, bringing its year-to-date total to well over $1 bln, surpassing its goal a full quarter early.
- Cisco reported revenue, margins and EPS all above the high-end of prior guidance ranges. It also generated solid growth in ARR, RPO and subscription revenue. Enterprise product orders were up 22% yr/yr, driven by double-digit growth in the Americas and APJC. Public sector orders were up 8% with growth in all geographies. Cisco noted that its US federal orders grew double-digits in Q3 after a challenging first half.
- The company said that product orders from service provider and cloud customers continue to be strong, up 32% yr/yr, driven by triple-digit growth in webscale. Networking product orders grew double-digits, driven by webscale infrastructure, enterprise routing, switching and our industrial IoT products.
- Cisco noted that, as infrastructure and manufacturing begins to onshore to the US, Cisco is well-positioned to help connect and protect these capital-intensive investments at scale. Its data center switching orders were up double-digits year-to-date. AI infrastructure orders from webscale customers were exceptionally strong in Q3.
- Turning to tariffs, Cisco said it has not seen any meaningful change in customer purchase decisions. It has not seen any customers really fundamentally slowing down. Cisco believes the AI transition is just so important that they are going to continue to spend until they just absolutely have to stop. As of right now, they're still comfortable. Also, Cisco did not see any signs of broad-based pull-forward sales or any push-outs for that matter.
Overall, this was a very good quarter for Cisco. It posted impressive numbers and guidance, but we think the positive comments on the call were just as important. Notably, Cisco is not seeing customers slow down purchases nor was there notable pull-forward sales to boost Q3 results. Given the macro/tariff uncertainty, we think these comments were about as positive as investors could expect.
Dick's Sporting Goods dives as market questions steep premium paid for struggling Foot Locker (DKS)
Dick's Sporting Goods (DKS) is selling off sharply, while Foot Locker (FL) is soaring after DKS announced its intention to acquire FL for approximately $2.4 bln, or $24 per share, marking a significant move in the athletic retail sector. This opposing movement is typical in acquisitions, where the acquiring company's stock declines due to perceived risks, but the hefty 87% premium over yesterday's closing price for FL is undoubtedly contributing to DKS's sell-off as investors assess the deal's valuation.
Separately, DKS also issued upside Q1 EPS guidance of $3.37 with solid comps of +4.5%, while FL issued downside Q1 EPS guidance of $(0.07) and weak comps of -2.6%, reflecting its ongoing challenges. This contrast in performance is not a new development as DKS has benefitted from market share gains and its diversified merchandise assortment, while FL has faced sluggish consumer spending and fierce competition.
- This deal potentially involves DKS issuing common stock since FL shareholders will have the option to receive either $24.00 in cash or 0.1168 shares of DKS common stock for each FL share they own. The total number of new shares issued will depend on the election choices made by FL's shareholders, but the possibility of DKS issuing common stock is one reason why shares are trading lower today. Another primary reason is the belief that DKS may be overpaying for FL.
- The transaction implies an enterprise value of approximately $2.5 bln for FL. DKS stated this represents an acquisition multiple of approximately 6.1x FL's adjusted EBITDA in FY24. Prior to the acquisition, FL was trading with a P/Adjusted EBITDA of approximately 3.5x, which reflected the company's struggles and weak financial performance, including yr/yr revenue declines in nine of the past eleven quarters. Given the poor results, investors could argue that FL doesn't warrant a P/Adjusted EBITDA of 6.1x, even though that looks relatively cheap on the surface.
- From a strategic standpoint, DKS's acquisition is motivated by its desire to expand its footwear business -- a critical growth area. FL, with over 2,000 stores globally and a focus on athletic footwear, complements DKS's broader sporting goods portfolio. Despite FL's struggles, DKS believes it can turn around FL's business. This turnaround strategy includes leveraging DKS's operational strengths and its strong brand relationships with NIKE (NKE) and Adidas. However, FL's smaller store layout may not align perfectly with DKS's success in large formats, potentially requiring reformatting or repurposing.
- There is also risk of sales cannibalization as both companies operate in overlapping markets, but DKS anticipates synergies, such as cost savings and cross-selling opportunities, will offset this. The integration plan involves maintaining FL as a standalone business while leveraging DKS's scale for improved purchasing power and operational efficiency, potentially mitigating cannibalization risks.
- DKS expects the transaction to be accretive to EPS in the first full fiscal year post-close, projected for FY26, driven by cost synergies such as reduced overhead and improved margins from combined operations. Factors supporting accretion include FL's potential for turnaround under DKS's management and increased market reach, potentially boosting revenue. However, financial risks include issuing new debt to finance the deal, and integration and execution risks are also significant as merging operations could disrupt DKS's momentum.
The market's unfavorable reaction to DKS's acquisition of FL reflects concerns about the high premium and integration risks. While the strategic fit is strong, with potential for footwear expansion, the execution challenges and risks of disrupting an already strong business have investors questioning the deal.
Walmart heads lower following Q1 results/guidance; sounds like some price increases are coming (WMT)
Walmart (WMT -2.4%) is heading lower after reporting Q1 (Apr) results this morning. After an initial move higher, the stock pulled back during the call. The retail giant beat on EPS and revenue, but it had just guided on April 9, so that was pretty much expected. The disappointment came from WMT opting not to provide Q2 (Jul) EPS guidance given the tariff uncertainty. It did provide Q2 top line guidance of +3.5-4.5% CC and it reaffirmed FY26 guidance.
- Its Walmart US segment performed well with comps (ex fuel) up +4.5%, roughly similar to Q4's +4.6%, but down a bit from +5.3% in Q3. Comp growth was led by health & wellness and grocery; seasonal events were strong; grocery share gains continued. Comps reflects higher transaction counts and unit volumes as well as strong growth in eCommerce.
- Momentum in grocery sales continued in Q1 with a mid-single digit comp and ongoing share gains. Health & wellness comps increased high teens, reflecting higher prescription volumes and OTC sales, while general merchandise (GM) sales declined slightly with softness in electronics, home products and sporting goods.
- Sam's Club US comps (ex fuel) were even more impressive, coming in at +6.7%, similar to Q4's +6.8%. Comps were led by grocery and health & wellness as well as its fourth consecutive quarter of positive GM comps. WMT does not provide comps for its Walmart International segment, but sales declined 0.3% to $29.8 bln. The silver lining was that it grew +7.8% CC, led by China, Flipkart, and Walmex.
- Not surprisingly, tariffs were a huge topic on the call. WMT was grateful for recent progress made with China and WMT is hopeful that will lead to a longer-term agreement. The company said it will do its best to keep prices as low as possible. However, given the magnitude of the tariffs, even at the reduced levels announced this week, WMT will not be able to absorb all the pressure given the reality of narrow retail margins.
- To its credit, WMT said it won't let tariff-related cost pressure on GM items put pressure on food prices. However, some food categories, in particular, from Costa Rica, Peru and Colombia are at risk for price hikes, including bananas, avocados, coffee and roses. WMT said the cost pressure from the tariffs impacted markets starting in late April and accelerated in May, so it sounds like some price hikes are possible.
Overall, the Q1 results were solid, but we knew that already with its April 9 guidance. As a result and as we said in our preview, all eyes would be on the guidance. Unfortunately, WMT declined to provide EPS guidance given the tariff uncertainty. We think the comments on the call about tariffs are largely responsible for the decline today. Saying that tariff-related cost increases accelerated in May was worrisome. Basically, it sounds like WMT will need to raise some price increases in Q2, which is not great news for consumers.
Everus Construction rebounds from Q4 miss with huge Q1 upside (ECG)
Everus Construction (ECG +18%) is surging today following its robust Q1 earnings last night. This provider of construction services, which was spun off from MDU Resources (MDU) in October 2024, reported an EPS miss in Q4, its first quarter as an independent company. That led to a sell-off in the stock in February. However, it bounced back with huge upside in its Q1 report.
- Everus reported a 32.1% yr/yr increase in revs to $826.6 mln, which blew away analyst expectations. The EPS upside was significant as well. It seems that analyst models were caught off guard following the Q4 miss, so maybe analyst estimates were much more conservative heading into Q1. Regardless, this was a very good redemptive quarter for Everus.
- Revenue was driven by continued strength in its electrical and mechanical (E&M) segment and across each of its E&M end markets, including its data center business. While revenue declined slightly in its Transmission and Distribution (T&D) segment due to some weather-related delays, the company said its T&D project execution was solid.
- Looking ahead, Everus is pleased to see momentum from favorable secular demand trends continuing into 2025. Its total backlog at the end of Q1 was up 10% sequentially and 41% yr/yr with growth in both E&M and T&D. Everus continues to see favorable trends in key submarkets, including data center, hospitality, and high tech reshoring. As it relates to data center work, there has been a lot of noise in the market. However, Everus continues to see very strong demand trends and has not seen any meaningful change in customers' plans.
- Regarding tariffs and trade, ECG feels well-equipped to manage through these challenges just as it did during the pandemic. In response, ECG is increasing dialogue with customers and it seeks early material procurement to lock in pricing when possible.
Overall, this was a great bounce back quarter for Everus. It is not unusual for it to take several quarters for analysts to get their models right since there is little history to go by. That is likely why we saw the Q4 miss, then analysts overcorrected with very conservative estimates for Q1, which Everus subsequently blew away. This is not a name that is widely followed given that it was a spin-off and not an IPO and is low profile. However, we suspect this report will get it on some radar screens. On a final note, this report follows big Q1 upside last week from its construction peer Tutor Perini (TPC).
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