| | | Market Snapshot
| Dow | 42677.24 | -114.83 | (-0.27%) | | Nasdaq | 19142.71 | -72.75 | (-0.38%) | | SP 500 | 5940.46 | -23.14 | (-0.39%) | | 10-yr Note |
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| | NYSE | Adv 1089 | Dec 1659 | Vol 988 mln | | Nasdaq | Adv 2145 | Dec 2280 | Vol 9.08 bln |
Industry Watch
| Strong: Consumer Staples, Utilities, Health Care |
| | Weak: Technology, Financials, Energy, Communication Services, Real Estate, COnsumer Discretionary |
Moving the Market
-- Continued consolidation after S&P 500 finishes Monday at levels last seen in late February
-- President Trump pushing Republicans to abandon Medicaid cuts; tells SALT Caucus to "let it go"
| Closing Stock Market Summary
20-May-25 16:25 ET
Dow -114.83 at 42677.24, Nasdaq -72.75 at 19142.71, S&P -23.14 at 5940.46
[BRIEFING.COM] The S&P 500 had a six-session win streak going, but on the seventh day it rested. There were no gains today as the stock market operated in consolidation mode following the massive run from the April 7 low. The Dow and Nasdaq followed suit, posting modest losses of their own, while the Russell 2000 was flat.
There wasn't any U.S. economic data of note to drive things, and the corporate news was limited. There was some added attention on President Trump's visit to Capitol Hill to discuss his objectives for the reconciliation bill with House GOP members. Reportedly, he told them not to mess with Medicaid cuts and rebuked the efforts by the SALT Caucus to raise the deduction limit beyond the $30,000 currently proposed, telling them to "let it go."
There was some chatter that neither camp was fully swayed by the president's exhortations, so there was a component of uncertainty around the reconciliation bill that contributed to the consolidation effort.
Overall, there wasn't much conviction in today's selling action. Eight S&P 500 sectors finished lower, but only one -- energy (-1.0%) -- declined at least 1.0%. Losses for the remaining sectors ranged from 0.2% to 0.8%. The three winning sectors -- utilities (+0.3%), health care (+0.3%), and consumer staples (+0.2%) -- reflected a more defensive-minded tape.
Market breadth skewed negative. Decliners led advancers by an 8-to-5 margin at the NYSE and by a roughly 11-to-10 margin at the Nasdaq.
Dow component Home Depot (HD 377.05, -2.21, -0.6%) was among the decliners, losing ground after a mixed Q1 report that featured an EPS miss, a revenue beat, a reaffirmation of FY26 guidance, and a declaration that the company does not plan to raise prices due to tariffs.
Alphabet (GOOG 165.32, -2.55, -1.5%) was another decliner amid its I/O event; meanwhile, Tesla (TSLA 343.82, +1.73, +0.5%) slotted into the advancers column but finished well off its session high of $354.98. Mega-cap stocks, in general, were softer today, which fit with today's consolidation bias, but they showed some vigor in the closing stages to help the indices come back from lower levels as the closing bell approached. The Vanguard Mega-Cap Growth ETF (MGK) declined 0.5% after being down 1.2%.
A consolidation mindset
20-May-25 15:30 ET
Dow -200.96 at 42591.11, Nasdaq -124.13 at 19091.33, S&P -36.51 at 5927.09
[BRIEFING.COM] The indices have seen a small bounce but remain in negative territory with a consolidation mindset and a more defensive orientation.
The utilities sector (+0.3%) is today's best-performing sector, followed by consumer staples (+0.1%) and health care (+0.1%). The biggest drags are the information technology (-0.9%), communication services (-0.9%), and energy (-0.9%) sectors.
There hasn't been any U.S. economic data of note to influence today's trade, and there won't be much tomorrow either. The lone release is the MBA Mortgage Applications Index (prior 1.1%).
Separately, there is going to be a $16 billion 20-yr note auction with results at 1:00 p.m. ET. With market participants mindful of the recent Moody's downgrade of the U.S. credit rating and festering uncertainty about a reconciliation bill that could add trillions to the budget deficit, there will be some added interest in this auction, and all auctions, going forward.
Mega-cap stocks take a dip
20-May-25 15:00 ET
Dow -264.54 at 42527.53, Nasdaq -164.51 at 19050.95, S&P -45.57 at 5918.03
[BRIEFING.COM] The major indices have weakened in the last half hour or so, with the Dow, Nasdaq, and S&P 500 sliding to session lows. The move was hastened by some selling in the mega-cap space.
Alphabet (GOOG 165.04, -2.83, -1.7%), which is holding its I/O event, is on the defensive, and Tesla (TSLA 345.89, +3.80, +1.1%) has dropped from session highs in a move that coincided with Elon Musk doing an interview with CNBC's David Faber.
The latter is likely more of a sell-the-news type response since Mr. Musk didn't say anything that could be interpreted as decidedly negative. In fact, he said Tesla is starting to see a rebound in its auto business and that Tesla will have fully autonomous vehicles on the roads of Austin, TX, by the end of June.
The Vanguard Mega-Cap Growth ETF (MGK) is down 1.0%.
S&P 500 lags as FICO, United Airlines weigh; Moderna jumps on annual booster hopes
20-May-25 14:25 ET
Dow -176.04 at 42616.03, Nasdaq -30.81 at 19184.65, S&P -93.67 at 5869.93
[BRIEFING.COM] The S&P 500 (-0.52%) is today's worst-performing average, down now about 30 points.
Briefly, S&P 500 constituents Fair Isaac (FICO 2034.30, -171.71, -7.78%), United Airlines (UAL 75.78, -2.84, -3.61%), and Norwegian Cruise Line (NCLH 18.25, -0.66, -3.49%) pepper the bottom of the average. FICO falls after FHFA Director Pulte signaled support for moving from a tri-merge to a bi-merge credit model in mortgage underwriting, criticizing FICO's costs and implying potential changes ahead, while UAL's declines are likely due to concerns about reduced capacity at Newark Liberty International Airport (EWR) — a key hub for United.
Meanwhile, Moderna (MRNA 28.50, +2.11, +8.00%) is outperforming after FDA leaders signaled support for approving annual COVID-19 boosters for high-risk groups based on immunogenicity data, streamlining the regulatory path for its core market. The shift away from broad low-risk approvals allows Moderna to focus on a more predictable, commercially viable segment, potentially boosting investor confidence in its long-term COVID vaccine revenue.
Gold jumps 1.6% as economic, geopolitical fears fuel safe-haven demand
20-May-25 14:00 ET
Dow -106.50 at 42685.57, Nasdaq -74.71 at 19140.75, S&P -22.15 at 5941.45
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.39%) is in last place on Tuesday afternoon, down just shy of 75 points.
Gold futures settled $51.10 higher (+1.6%) at $3,284.60/oz, as ongoing concerns about the U.S. economy and global conflicts have intensified the appeal of gold as a protective investment.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $100.14.
Intel doubling down on core chip strategy with potential Network and Edge unit sale (INTC)
Intel's (INTC) reported exploration of a sale of its Network and Edge unit, as disclosed by Reuters, aligns with the chip maker's broader strategy to streamline operations and bolster its balance sheet under new CEO Lip-Bu Tan. Following the recent divestiture of a 51% stake in its Altera programmable chip business to Silver Lake for $4.46 bln this past April, INTC is accelerating efforts to shed non-core assets to fund its turnaround. Alongside these divestitures, Tan has recently implemented a restructuring plan, emphasizing eliminating bureaucratic layers and flattening management to enhance execution, signaling a focused pivot toward INTC’s historical strengths in PC and data center chip manufacturing.
- The Network and Edge unit, which generated $5.8 bln in revenue and $931 mln in operating income in FY24, designs chips for telecommunications equipment, networking infrastructure, and edge computing applications, serving end markets such as telecom providers, cloud service providers, and enterprises deploying 5G and IoT solutions. These chips, including Ethernet controllers and network processors, enable connectivity and data processing at the network edge, but the unit’s relevance to INTC’s core strategy has diminished as competitors like Broadcom (AVGO) have solidified dominance in high-margin networking segments.
- Network and Edge's 5.8 bln in revenue represents roughly 10% of INTC’s total FY24 sales, but its growth has been modest (+1% in FY24) indicating that it lags behind the high-growth AI and data center markets. Although Reuters reported that INTC has yet to solicit bidders, potential acquirers could include AVGO, which has a strong networking portfolio and could integrate the assets to bolster its 5G and cloud offerings, or Marvell Technology (MRVL), which has expertise in infrastructure chips and was previously mentioned as a potential buyer for Altera.
- Selling the Network and Edge unit could provide a substantial cash infusion -- potentially in the $20-$25 bln range -- to reduce debt, fund R&D for next-generation PC and data center chips (e.g., Core Ultra 200 with integrated NPUs), and support fab expansions critical for the 18A process technology, targeted for break-even by 2027. However, a divestiture would also carry risks: the unit’s chips are integral to telecom and edge computing, markets with long-term growth potential as 5G and IoT adoption accelerates, and a sale could cede strategic ground to competitors like AVGO. Additionally, INTC’s decision to fold Network & Edge's financials into its data center and PC groups in 1Q25 suggests it may view the unit as less critical, but a premature sale could undervalue its future potential if market conditions improve.
In conclusion, INTC’s exploration of a Network and Edge unit sale is a pragmatic step to streamline its portfolio and fund its turnaround, aligning with CEO Lip-Bu Tan’s focus on core PC and data center businesses. While the proceeds could bolster INTC’s financial position and support strategic investments, the stock’s recovery hinges on execution in regaining data center market share and achieving foundry profitability, with this possible divestiture serving as a meaningful but not definitive catalyst.
Home Depot shrugs off mixed Q1 as reaffirmed guidance, easing tariff concerns lift stock (HD)
Home Depot's (HD) 1Q26 results marked a rare miss on EPS with the shortfall primarily driven by softer-than-expected demand for big-ticket items as consumers continued to defer large home renovation projects as mortgage rates hover around 7%. Despite the earnings miss, the stock rallied post-earnings, buoyed by a revenue beat, positive transaction growth, and a reaffirmation of FY26 guidance, signaling management's conviction in the company’s ability to navigate macroeconomic headwinds, including tariff pressures and a sluggish housing market. That conviction partly rests in the solid growth of HD's Pro business and the successful integration of SRS Distribution.
- Comparable sales in Q1 came in at (0.3)%, slightly below the expected (0.2)%, slipping back into negative territory after HD generated positive comps for the first time in two years last quarter at +0.8%. This downturn was driven by cautious consumer behavior, particularly in big-ticket discretionary categories like appliances and flooring, where high prices and financing costs deterred purchases. However, smaller project categories, such as spring seasonal products and tools, showed resilience, supported by strong customer engagement in these areas.
- Average ticket was essentially flat yr/yr at $90.71, supported by strength in smaller, high-margin purchases, while comparable transactions increased by 2.1%, driven by heightened engagement in smaller, high-frequency purchases, particularly in spring seasonal categories like gardening supplies, outdoor tools, and lawn care products. HD’s focus on enhancing its digital ecosystem, with online sales contributing significantly to revenue, also likely boosted transaction volume through convenient e-commerce channels.
- Gross margin contracted by 30 bps yr/yr to 33.8%, primarily due to the integration of SRS Distribution, which carries lower margins than HD’s core retail operations. Additional pressure came from increased trade spending and inflationary costs, though these were partially offset by productivity gains and favorable product mix shifts toward higher-margin smaller projects. HD reaffirmed its FY25 gross margin guidance of approximately 33.4%, signaling confidence in its ability to keep margins stable. Notably, HD’s CEO emphasized a commitment to maintaining pricing levels despite tariff uncertainties, with the recent reduction of Chinese import tariffs from 145% to 30% and a suspension of reciprocal tariffs to a 10% universal duty providing some relief.
- The Pro business, which accounts for roughly 50% of HD’s customer base, continued to be a bright spot in Q1, with positive sales growth driven by strong engagement from professional contractors. The acquisition of SRS Distribution, finalized last summer for $18.25 bln, significantly bolstered this segment, expanding HD’s addressable market to an estimated $250 bln. SRS Distribution likely performed in-line with HD's expectations (inferred by its reaffirm of FY26 guidance), contributing to the quarter’s revenue growth of +9.4% while enhancing HD’s reach in building materials and specialty trade services.
HD is demonstrating resilience following a mixed 1Q26 earnings report, with the revenue beat and reaffirmed FY25 guidance overshadowing the EPS miss. Investors appear optimistic about the company’s strategic focus on the Pro business and SRS Distribution’s growth potential, anticipating stronger performance as macroeconomic headwinds ease and housing market conditions potentially improve.
Amer Sports surges to new post-IPO high as its Arc'teryx brand leads the way (AS)
Amer Sports (AS +17%) is surging to a new post-IPO high today following its Q1 report this morning. This Finland-based athletic company (apparel, footwear, equipment, protective gear, accessories) reported its largest EPS upside of any quarter since making its IPO debut in February 2024. Revenue also grew a healthy 24.5% yr/yr to $1.47 bln, which was also better than expected. The in-line Q2 guidance was maybe a slight letdown. Also the FY25 EPS guidance increase was less than the Q1 upside, but AS perhaps is just being conservative as it's still early in the year.
- Its Technical Apparel segment led the way with sales up 28% (+32% CC) to $664 mln, reflecting omni-comp growth of +19%. Outdoor Performance also performed well with sales up 25% (+29% CC) to $502 mln while its Ball & Racquet Sports segment did not quite perform as well, but still posted a 12% (+13% CC) sales increase to $306 mln.
- AS saw continued broad-based strength from its flagship brand Arc'teryx. Footwear continues to be Arc'teryx's fastest-growing category. Consumers are responding positively to what AS believes is the best line of technical performance footwear designed for mountains. This spring, Arc'teryx launched the Norvan LD4 an elevation of its popular silhouette made for long distance mountain ranges. It also launched Vertex Speed. Looking forward, Arc'teryx has an exciting pipeline for shoe launches in 2H25.
- Women's also continued its momentum in Q1 with double-digit growth across all regions and channels, outperforming the rest of the Arc'teryx brand in every region. AS sees a big opportunity to serve women in the outdoor segment. The company is seeing rising brand awareness and affinity with women in the US and Europe as the brand has improved its fit, style, and function.
- Its Outdoor Performance segment was led by its Salomon brand for footwear and apparel. Global brand momentum behind Salomon's sneakers is accelerating. AS noted that, not only is Salomon growing very well in China and APAC, it's now also starting to impress in both the US and in Europe. Brand awareness has doubled over the past couple of years. Salomon sneakers surpassed $1 bln in sales in 2024 as Salomon offers technical features but are also great for everyday use.
Overall, this was a great quarter for Amer Sports, probably its best quarter since coming public early last year. What's impressive is that Amer Sports' yr/yr revenue growth has gotten larger each of its five quarters as a public company. That does not happen often. However, we think that its earnings reports are increasingly attracting attention from investors. Footwear has been in the news lately with Skechers (SKX) announcing a deal to be acquired and last week DKS said it's buying Foor Locker (FL). With increased focus on the industry, we think Amer Sports deserves a higher profile.
Sanmina slides as market questions value proposition of ZT Systems Manufacturing purchase (SANM)
Sanmina (SANM) is trading sharply lower following the announcement of its $3.0 bln acquisition of ZT Systems' data center infrastructure manufacturing business from Advanced Micro Devices (AMD), reflecting investor concerns surrounding integration risks, the significant amount of new debt obtained to finance the deal, and the issuance of equity to pay for part of the premium. ZT Systems, acquired by AMD for $4.9 bln less than two months ago, is a supplier of hyperscale server solutions, specializing in the design, integration, manufacturing, and deployment of cloud and AI infrastructure for major clients like Amazon (AMZN) Web Services and Microsoft (MSFT) Azure.
The deal’s structure includes SANM paying $2.25 bln in cash, a $300 mln premium (split evenly between cash and equity), and up to $450 mln in contingent consideration based on the business’s financial performance over the next three years. In connection with the transaction, SANM has obtained committed financing from Bank of America for $2.5 bln.
- ZT Systems’ $5–6 bln revenue run-rate implies a price-to-sales ratio of approximately 0.5–0.6x, which is reasonable for a manufacturing business with lower gross margins (possibly below 10%) compared to AMD’s high-margin chip design operations. However, the contingent payment introduces risk, as achieving the full $3 bln valuation depends on sustained performance in a competitive market. While not overtly overpriced, the deal’s success hinges on SANM’s ability to leverage ZT Systems’ scale and customer relationships without eroding margins, particularly as hyperscale demand fluctuates.
- AMD’s decision to divest ZT Systems’ manufacturing business aligns with its strategic focus on high-margin, design-driven segments like AI accelerators and rack-scale AI systems, while shedding capital-intensive manufacturing operations. By retaining ZT Systems’ design and customer enablement teams, AMD ensures it can accelerate the quality and deployment of AI solutions for hyperscale clients without the burden of managing manufacturing.
- SANM’s designation as a preferred new product introduction manufacturing partner for AMD’s cloud rack and cluster-scale AI solutions strengthens this collaboration, enabling AMD to streamline supply chains and focus R&D on competitive areas like its Instinct AI accelerators and EPYC processors. Financially, the $3 bln sale, following the $4.9 bln acquisition, allows AMD to recoup a significant portion of its investment, bolstering its balance sheet for further AI investments, although the divestiture reduces AMD’s direct control over manufacturing quality and timelines.
- For SANM, acquiring ZT Systems’ manufacturing business is a strategic pivot to capitalize on the AI infrastructure boom, positioning it as a leader in cloud and AI ecosystems. The acquisition enhances the company's end-to-end component technology, systems integration, and supply chain solutions by integrating ZT Systems’ expertise in high-quality manufacturing for hyperscalers, particularly its advanced liquid cooling capabilities critical for dense AI compute environments.
- The deal is expected to be accretive to SANM’s non-GAAP EPS in the first year post-close, driven by synergies from combining SANM’s global manufacturing expertise with ZT Systems’ hyperscaler relationships and specialized facilities. However, SANM must navigate margin pressures in contract manufacturing and integration costs, which could temper EPS growth if hyperscale demand slows or competition intensifies.
For AMD, the divestiture sharpens its focus on high-margin AI design and recoups significant capital, though it risks reduced manufacturing oversight. Meanwhile, SANM gains a transformative foothold in AI infrastructure with strong revenue and EPS growth potential but faces challenges in integration and margin sustainability.
Bath & Body Works hires Nike exec as new CEO on hopes he can turn brand around (BBWI)
Bath & Body Works (BBWI) is taking a step today that investors hope will turn the company's fortunes around. It named Daniel Heaf as its new CEO, effective immediately. In addition, the company offered encouraging Q1 (Apr) guidance with upside EPS and in-line revenue. It also reaffirmed full-year EPS and revenue guidance.
- Heaf comes over from Nike (NKE), where he drove significant growth in retail and digital sales channels during a time of massive upheaval in the marketplace. Most recently, he was Nike's Chief Strategy and Transformation Officer, where he delivered productivity gains by refocusing resources and investment. Before that, he was Head of Nike Direct. Before Nike, Heaf worked at Burberry, where he helped reposition the brand as a digital innovator.
- Bath & Body Works is a bit of a different animal as one of the world's largest specialty retailers of fragrances for the body (fragrance mist, body lotion, body cream) and home (candles, fragrance diffusers, soap). But the hope is he can turn this struggling brand around. A big issue for BBWI is that consumers have become more value-conscious. Also, BBWI's merchandise in general is highly discretionary.
- BBWI concedes the market for candles, a core category for BBWI, has become a lot more competitive with a value-conscious consumer. In response, BBWI recently launched collaborations with big names and pop culture through partnerships with companies like Netflix. It also successfully rolled out Everyday Luxuries, its prestige-inspired line of fine fragrance mist, which is resonating with younger customers.
- In 2025, BBWI expects to build on platforms launched in 2024, including Everyday Luxuries and Collaborations. It also expects to extend its reach through adjacencies and international expansion. BBWI is expanding its Everyday Luxuries collection with additional fragrances and forms, including body cream and body wash. It's also expanding into adjacent categories like Men's, Hair, Lip and Laundry.
- A key strategy for BBWI has been to move away from malls. Today, 57% of its North American stores are in off-mall locations with a plan to increase this to 75% over time. Also, international markets represent only 5% of sales, but BBWI sees potential in growing international sales.
The stock is trading lower today despite the CEO news. We think the overall weakness in the stock market is the main reason. However, the lack of upside tells us that investors may be taking a wait-and-see approach to see how a Nike executive could turn around a candle/fragrance brand. The businesses are quite different, but we should get some initial insight when BBWI reports earnings next week (May 29 before the open). On a final note, we wanted to mention that BBWI was added to our YIELD rankings on Friday. BBWI repurchased $400 mln in shares in 2024, a good amount for a company with a $7.1 bln market cap, plus it pays a 2.4% dividend yield.
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