| | | Market Snapshot
| Dow | 41860.44 | -816.80 | (-1.91%) | | Nasdaq | 18872.64 | -270.07 | (-1.41%) | | SP 500 | 5844.61 | -95.85 | (-1.61%) | | 10-yr Note |
|
|
|
| | NYSE | Adv 283 | Dec 2521 | Vol 1.16 bln | | Nasdaq | Adv 846 | Dec 3609 | Vol 11.2 bln |
Industry Watch
| Strong: Communication Services |
| | Weak: Health Care, Consumer Discretionary, Utilities, Real Estate, Financials, Information Technology, Industrials |
Moving the Market
-- Pressure on sentiment amid ongoing selling in Treasuries, which stepped up following a relatively disappointing 20-yr bond auction
--Deficit concerns, as press reports say agreement has been reached to raise SALT deduction cap to $40,000 and that conservative House GOP members have dropped demands for larger Medicaid cuts
|
Closing Stock Market Summary
21-May-25 16:25 ET
Dow -816.80 at 41860.44, Nasdaq -270.07 at 18872.64, S&P -95.85 at 5844.61
[BRIEFING.COM] The stock market hit a wall today, and it didn't have so much to do with the disappointing earnings report and outlook from Target (TGT 93.01, -5.11, -5.2%) as it did with the concerning movement in Treasury yields.
The 10-yr note yield settled the cash session at 4.60%, up 12 basis points, while the 30-yr bond yield settled the day at 5.09%, up 13 basis points. The selling interest in the Treasury market was precipitated initially by inflation angst after the UK printed a hotter-than-expected CPI number for April and deficit angst. Press reports highlighted an agreement to raise the SALT deduction cap to $40,000 (from $10,000) and noted that conservative House GOP members were dropping their demands for larger cuts to Medicaid.
It is unclear at this point if the latter is the case, as the debate within the GOP continues as of this writing. There has been a suggestion, though, that the House may press ahead with a full vote on the reconciliation bill as early as tonight.
Treasury yields took another turn for the worse in the afternoon following a $16 billion 20-yr bond auction that saw some relatively soft dollar demand, evidenced by a 2.46 bid-to-cover ratio that fell short of the prior 12-auction average of 2.58. The high yield of 5.047% at the auction tailed the when-issued yield of 5.035% by more than a basis point.
The major indices, which had been vacillating with relatively modest changes, saw selling interest pick up and bids fall by the wayside after the auction. The spike in yields triggered renewed growth concerns that hit the small-cap Russell 2000 (-2.8%) the hardest and that ultimately contributed to losses in 10 of the 11 S&P 500 sectors.
The lone holdout was the communication services sector (+0.7%), which garnered support from Alphabet's (GOOG 170.06, +4.74, +2.9%) outperformance following its I/O event.
The real estate (-2.6%), health care (-2.4%), financials (-2.1%), consumer discretionary (-1.9%), and utilities (-1.9%) sectors were the biggest losers.
Market internals showed decliners outpacing advancers by a nearly 9-to-1 margin at the NYSE and by a 4-to-1 margin at the Nasdaq. Dow component UnitedHealth Group (UNH 302.98, -18.60, -5.8%) was among the decliners, pressured by an HSBC downgrade to Reduce from Hold and a report in The Guardian that chronicled allegations of the company paying nursing homes to reduce transfers between hospitals. UnitedHealth denounced the report, saying the DOJ investigated the allegations and declined to pursue the matter due to its finding of significant factual inaccuracies in the allegations.
Still, that didn't help the managed care company's stock, which joined many others today on the losing end of things. The major indices closed just off their worst levels of the session.
The only economic data out this morning was the MBA Mortgage Applications Index. It was down 5.1% week-over-week, with refinance applications and purchase applications both down 5.0% as demand weakened with rising mortgage rates.
- DJIA: -1.6% YTD
- S&P 500: -0.6% YTD
- Nasdaq Composite: -2.3% YTD
- S&P Midcap 400: -4.3% YTD
- Russell 2000: -8.2%
Buyers back away; indices fall to session lows
21-May-25 15:30 ET
Dow -860.80 at 41816.44, Nasdaq -321.55 at 18821.16, S&P -104.94 at 5835.52
[BRIEFING.COM] Buyers have backed away with Treasury yields hitting new highs for the day. Accordingly, the major indices are trolling their worst levels of the day amid a lack of leadership.
The negative bias is pronounced in market internals. Decliners lead advancers by an 8-to-1 margin at the NYSE and by a better than 4-to-1 margin at the Nasdaq.
Mega-cap stocks had been offering support to the broader market earlier, but bids have fallen by the wayside in the afternoon trade. The Vanguard Mega-Cap Growth ETF (MGK), up 0.4% shortly before the 20-yr bond auction results at 1:00 p.m. ET, is now down 1.8%.
The small-cap Russell 2000 (-2.8%), though, is the biggest loser, as economic growth concerns have increased along with the jump in market rates that some fear have further to run, given projections that passage of the reconciliation bill will add trillions to the budget deficit over the 10-year horizon.
Higher yields, lower stocks
21-May-25 15:00 ET
Dow -778.61 at 41898.63, Nasdaq -243.00 at 18899.71, S&P -87.62 at 5852.84
[BRIEFING.COM] The major indices have rolled over in the afternoon trade, undercut by Treasury yields taking a noticeable turn higher in the wake of a relatively soft $16 billion 20-yr bond auction.
The 10-yr note yield is up 11 basis points to 4.59%, and the 30-yr bond yield is up 13 basis points to 5.09%.
This bump in rates is creating concerns about increased competition for stocks, increased headwinds for growth, and increased angst about the reconciliation bill adding trillions to the budget deficit and necessitating increased Treasury supply to fund that deficit.
The communication services sector (+0.7%) is the lone sector in positive territory but has moved well off its session high (+2.5%). The other ten sectors are all down at least 1.1%, yet three -- real estate (-2.6%), utilities (-2.0%), and health care (-2.0%) -- are down 2.0% or more.
S&P 500 slips 1.3% as PANW, PSX lead declines; Newmont gains with commodities
21-May-25 14:30 ET
Dow -706.83 at 41970.41, Nasdaq -194.74 at 18947.97, S&P -74.78 at 5865.68
[BRIEFING.COM] The S&P 500 (-1.26%) is in second place on Wednesday afternoon.
Briefly, S&P 500 constituents Amentum Holdings (AMTM 20.43, -1.47, -6.71%), Palo Alto Networks (PANW 182.39, -12.09, -6.22%), and Phillips 66 (PSX 113.85, -7.05, -5.83%) dot the bottom of the standings. PANW slides after earnings/guidance, while PSX falls after shareholders elected two Elliott Management nominees to the board, signaling strong dissatisfaction with current leadership and strategy.
Meanwhile, Newmont Corporation (NEM 52.71, +0.41, +0.78%) is decently higher, mirroring strength in the commodity complex today.
Gold climbs near record highs as dollar weakens, fiscal worries mount
21-May-25 14:00 ET
Dow -671.55 at 42005.69, Nasdaq -177.24 at 18965.47, S&P -68.25 at 5872.21
[BRIEFING.COM] The Nasdaq Composite (-0.93%) is down 177 points, hosting the shallowest percentage declines among the major averages to this point on the session.
Gold futures settled $28.90 higher (+0.9%) at $3,313.50/oz, driven partly by a weakening U.S. dollar and escalating concerns over the nation's fiscal health. Concurrently, debates in Congress over a substantial tax-cut bill have intensified worries about the U.S. fiscal deficit, further bolstering gold's appeal as a safe-haven asset.
Meanwhile, the U.S. Dollar Index is down about -0.6% to $99.48.
TJX posts solid Q1 results, highlighted by comps beat, but lukewarm Q2/FY26 outlook weighs (TJX)
TJX (TJX) delivered a modest $0.01 EPS beat for 1Q26, which is less pronounced than in prior quarters, reflecting pressures from ongoing tariff-related costs. The company achieved comparable store sales growth of +3%, hitting the high end of its guidance range, underscoring the resilience of TJX’s off-price retail model and its treasure-hunt shopping experience. However, this positive comp performance is overshadowed by TJX’s downside EPS and revenue guidance for Q2 and FY26, driven by persistent tariff pressures, FX headwinds, expected gross margin contraction, and a cautious view, expressed through a reaffirmation of its FY26 comp guidance of 2-3%, despite the upside Q1 result.
- TJX's better-than-expected comp of +3% was driven by strong customer traffic across its divisions, with Marmaxx US posting +2% comp growth and HomeGoods achieving a standout +4%.
- Marmaxx, encompassing T.J. Maxx, Marshalls, and Sierra, benefited from solid demand for apparel and accessories, particularly in value-driven categories like casual and athletic wear, though home furnishings within the segment saw softer performance amid macroeconomic pressures on discretionary spending.
- HomeGoods’ robust +4% comp growth was fueled by strong sales in decorative accessories, tabletop, and cookware, as consumers gravitated toward refreshing home aesthetics at discounted prices, though furniture lagged due to higher price points and reduced big-ticket purchases.
- Macroeconomic factors, including persistent inflation and high interest rates, have driven value-conscious consumers to TJX’s off-price model, while company-specific initiatives—such as sharp inventory management, opportunistic buying, and an engaging in-store experience—continue to support comp growth. These trends reflect TJX’s ability to capture market share in a retail landscape where full-price competitors struggle to maintain foot traffic.
- TJX's gross profit margin declined by 50 bps yr/yr to 29.5%, a notable contraction that reflects several headwinds. The primary driver was the impact of tariffs on imports, particularly from China, which increased merchandise costs and squeezed margins. Additionally, incremental freight costs, though less severe than in prior years, continued to pressure profitability, as did a slight uptick in markdowns to maintain competitive pricing in a value-sensitive market.
- For Q2 and FY26, TJX’s downside EPS guidance signals caution, reflecting ongoing tariff pressures, which TJX assumes will remain at current levels through FY26. Historically, TJX has a track record of conservative guidance, often exceeding expectations, suggesting potential for upside if tariff impacts are mitigated or consumer spending stabilizes. TJX also reaffirmed its FY26 comp guidance of +2–3%, with management noting that Q2 is off to a strong start, driven by continued customer traffic and robust apparel and home category performance. The Q2 comp guidance of +2–3%, aligning with consensus estimates, appears achievable given TJX’s operational momentum and ability to source compelling merchandise.
In summary, TJX’s 1Q26 results highlight the strength of its off-price model, with +3% comps reflecting robust customer traffic and category resilience. However, the company’s cautious EPS guidance for Q2 and FY26, driven by tariff pressures and gross margin contraction, tempers optimism, signaling near-term profitability challenges despite a favorable sales outlook.
Palo Alto Networks lower despite solid earnings beat; first-ever $5 bln quarter for NGS ARR (PANW)
Palo Alto Networks (PANW -5%) is trading lower despite reporting EPS and revenue upside with its Q3 (Apr) report last night. The cybersecurity giant posted a solid EPS beat with its typical upside (split adjusted). Revenue rose 15.3% yr/yr to $2.29 bln, which just a bit better than expected. Guidance was decent with an in-line outlook for Q4 (Jul). However, there were some metrics that were perhaps a bit soft.
- Next-Generation Security ARR grew 34% yr/yr to $5.10 bln vs $5.03-5.08 bln prior guidance. This was a key milestone for PANW with its first-ever $5 bln quarter for NGS ARR. In fact, PANW believes it has reached an inflection point in its NGS ARR story as a growing majority of its incremental growth this year is derived from its AI-powered XSIAM, SASE and software firewalls. These offerings have large TAMs and should fuel further growth as PANW marches towards its $15 bln ARR target for FY30.
- One of the metrics that was maybe a slight letdown was Remaining performance obligation (RPO), which grew 19% yr/yr to $13.5 bln, at the low end of $13.5-13.6 bln prior guidance. PANW noted that customers continue to make significant commitments through its platformization deals, particularly when adopting XSIAM. PANW continues to see increasing demand for annual payments, particularly deals over $1 mln, but PANW is absorbing this transition.
- Another area that was perhaps a bit soft was non-GAAP gross margin at 76%. However, it's worth noting that PANW has been transitioning to a contract manufacturing facility in Texas as its primary manufacturing and performance center. This is partly to take advantage of a foreign trade zone that can help mitigate tariffs. PANW believes that it differentiates itself by being the only pure play cybersecurity firm at scale to assemble all hardware in the US. As a result, tariff impacts have been immaterial.
- PANW saw double-digit growth across all geographies, with the Americas growing 12%, EMEA up 20%, and JAPAC growing 23%. Looking forward, PANW said as AI becomes more deeply integrated into its customers' businesses, the need to protect the underlying data, models and infrastructure will become paramount. Over the next year, an estimated $300+ bln will be spent on AI infrastructure alone.
Overall, this was a good, solid report for PANW with maybe some areas of slight underperformance, which may explain the weakness today. However, it may also be some profit taking given the 30+% move in the stock since early April.
Lowe's delivers solid Q1 EPS beat and maintains FY26 outlook as Pro sales shine (LOW)
Lowe's (LOW) surpassed 1Q26 EPS expectations, extending a winning streak versus analysts' earnings estimates that spans over five years. The upside Q1 EPS result was driven by better-than-expected comparable sales of (1.7)%, improved gross margin due to cost management and a favorable mix shift towards higher-margin products, and the positive impact of share buybacks. The company's reaffirmed FY26 guidance, projecting EPS of $12.15-$12.40, total sales of $83.5 to $84.5 billion, and comparable sales growth of flat to +1%, mirrors Home Depot's (HD) approach and provides reassurance to investors amid tariffs and macroeconomic headwinds.
- LOW's Q1 comps decreased by 1.7%, marking a return to negative territory following a positive comp of +0.2% in the previous quarter. Despite this decline, the figure exceeded analyst expectations, suggesting resilience in a challenging environment. However, it lagged behind HD's comparable sales decline of 0.3%. This gap is likely attributable to LOW's lower exposure to the Pro market (approximately 25% of sales compared to 50% for HD), which has seen stronger demand compared to the DIY business. The underlying factors driving LOW's comps include persistent weakness in big-ticket discretionary items and projects and unfavorable weather conditions, partially offset by mid-single-digit growth in Pro and online comparable sales.
- From a product category standpoint, outdoor living products, such as garden supplies, outdoor power equipment, grills, and patio furniture saw solid demand. Meanwhile, a slower housing market and reduced consumer spending hindered sales in discretionary DIY product categories (home decor, tools), while big-ticket items, such as high-end appliances or large-scale renovation materials, were another likely source of weakness.
- Gross margin improved by 19 bps to 33.38%, driven by better pricing strategies, effective cost management, and a favorable product mix shift. The growth in Pro and online sales, which typically carry higher margins, likely contributed as well, as did disciplined inventory management and operational efficiencies.
- Given the ongoing economic uncertainty, LOW's reaffirmed FY26 guidance provides some reassurance, especially as it aligns with HD's approach, reinforcing investor confidence in LOW's ability to maintain growth and profitability. Strategies such as LOW's Perpetual Productivity Improvement (PPI) initiative, which aims to enhance operational efficiency across all facets of LOW's business, should support its margins and profitability in FY26. Some specific initiatives within the PPI include modernizing checkout infrastructure, enhancing store inventory management systems, expanding the rollout of digital signs, and investing in new touchscreen point-of-sale systems.
LOW's Q1 results demonstrate the company's operational strength with EPS beating expectations and gross margins modestly expanding. The reaffirmed FY26 guidance, projecting modest sales growth and stable margins, offers investors reassurance amid macroeconomic uncertainties, particularly in housing and interest rates. This consistency in beating EPS estimates underscore LOW's strong position in the home improvement sector.
Target misses the target in Q1 as sales pressure, markdowns, and tariffs weigh on results (TGT)
Target (TGT -3%) is heading lower after reporting Q1 (Apr) results. Target missed by a good amount on EPS due to margin pressure. Target has now reported two large EPS misses in the last three quarters. Revenue fell 2.8% yr/yr to $23.85 bln, which was also light of expectations. TGT lowered its FY26 adjusted EPS guidance quite substantially to $7.00-9.00 from $8.80-9.80. It also lowered FY26 sales guidance to a low-single digit decline from +1%.
- Same store comps for Q1 came in at -3.8% (in-store -5.7%; digital +4.7%), a notable drop off from Q4's +1.5% (in-store -0.5%; digital +8.7%). Comps were impacted by traffic -2.4% and average ticket -1.4%. The Q1 comp was disappointing considering that Target was lapping a weak -3.7% comp in the year ago period.
- Target described Q1 as an exceptionally challenging environment with declines in both traffic and sales, most notably in its discretionary categories. For several years now, Target has seen pressure in its discretionary categories as spending has declined from elevated levels during the pandemic and then moved further down in the face of historically high inflation. Target is dealing with declining consumer confidence and uncertainty regarding tariffs.
- In response, Target is beefing up its value offering this summer by offering more than 10,000 new items starting at just $1 in its popular Bullseye's Playground at the front of the store where items are priced at $1, $3 and $5. Target is expanding this assortment to include trending snacks and beverages.
- On its Q4 call, Target did not guide for Q1 operating margin, but prepared investors for a big margin decline due to consumer uncertainty. That turned out to be the case with adjusted operating margin falling to 3.7% from 5.3% a year ago and 4.7% in Q4. Margins were impacted higher-than-expected markdowns offset partially by significant savings from lower inventory shrink and the benefit of cost efficiency and productivity efforts.
- For Q2 (Jul), Target expects headwinds to persist. This includes sales pressure, tariff impacts and some additional costs to adjust inventory. In the back half of the year, Target noted it will be lapping easier comparisons and expects to have inventory and receipt adjustment costs behind it. Based on lower sales for the full year, Target anticipates downward pressure on profitability with meaningful offsets from lower shrink and cost initiatives.
As we said in our preview, we had concerns about Q1, especially margins. And that turned out to be the case. Weak sales and higher-than-expected markdowns pressured margins. And it sounds like its business will remain weak in Q2. We would be cautious with Target in the near term given all the headwinds. A big thing hurting Target is that it has higher exposure to discretionary categories while Walmart (WMT) generates the majority of its sales from groceries.
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.
|
|
