| | | Market Snapshot
| Dow | 42171.66 | -44.14 | (-0.10%) | | Nasdaq | 19546.28 | +25.18 | (0.13%) | | SP 500 | 5980.87 | -1.85 | (-0.03%) | | 10-yr Note |
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| | NYSE | Adv 1534 | Dec 1210 | Vol 1.17 bln | | Nasdaq | Adv 2574 | Dec 1830 | Vol 7.85 bln |
Industry Watch
| Strong: Utilities, Real Estate, Information Technology |
| | Weak: Energy, Communication Services, Materials, Industrials, Consumer Discretionary |
Moving the Market
-- Ongoing uncertainty surrounding Israel-Iran conflict, but President Trump indicates it is not too late for Iran to negotiate
-- FOMC leaves target rate for fed funds rate unchanged at 4.25-4.50%; dot plot still shows two rate cuts by end of 2025, but also indicates lower estimate for real GDP growth and higher estimate for PCE inflation in 2025
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Closing Stock Market Summary
18-Jun-25 16:20 ET
Dow -44.14 at 42171.66, Nasdaq +25.18 at 19546.28, S&P -1.85 at 5980.87
[BRIEFING.COM] If one didn't know any better, today was just a run-of-the-mill day for the stock market. The major indices were little changed, but it wasn't an ordinary day. Today was a day filled with geopolitical intrigue and wonderment about the Federal Reserve's outlook.
The Israel-Iran conflict took precedence as an early driver. Stocks moved higher, keying on a remark from President Trump, who said there is still time for Iran to negotiate. The idea that a diplomatic solution has not been written off, despite the president's take yesterday that his patience with Iran is wearing thin, was a welcome headline consideration.
It would be remiss not to add, though, that the president also said Iran cannot have a nuclear weapon and that later this week or next week will be "big." That view mitigated some of the excitement around the first headline, yet stocks held their ground in positive territory leading up to the FOMC decision and release of the Summary of Economic Projections (SEP) at 2:00 p.m. ET.
As expected, the FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 4.25-4.50%, but the SEP was confounding in that it showed a median estimate for two rate cuts before the end of the year, the same as in the March SEP, but an increase in the median estimate for PCE inflation to 3.0% from 2.7% and an increase in the median estimate for core PCE inflation to 3.1% from 2.8% for 2025. The median estimate for real GDP growth, meanwhile, was lowered to 1.4% from 1.7%, and the median estimate for the unemployment rate bumped up to 4.5% from 4.4%.
Fed Chair Powell's overarching message in the press conference, which began at 2:30 p.m. ET, is that uncertainty remains elevated and that the Fed needs more time to assess incoming data before determining its next policy move. He also expressed an expectation for some meaningful inflation in coming months on account of the tariffs.
Stocks retreated from higher levels, and Treasury yields rose, in the wake of the FOMC decision and press conference, but the reaction function was fairly constrained given the magnitude of the event. The S&P 500 finished the day flat, the 2-yr note yield settled unchanged at 3.95%, and the 10-yr note yield settled the session up one basis point at 4.40%.
In brief, while buying efforts faded, there wasn't a lot of conviction on the part of sellers.
Sector performances reflected the reserved action. Four sectors finished higher. The information technology sector (+0.4%) was the biggest gainer. Seven sectors finished lower, with energy (-0.7%) and communication services (-0.7%) in a dead heat for biggest loser, only neither was down that much.
WTI crude futures traded above $75.00/bbl earlier in the day but settled up just 0.4% at $73.56/bbl, coming off the boil as the president dangled the carrot of a possible diplomatic solution.
In other developments, the CBOE Volatility Index declined 6.2% to 20.26; initial jobless claims remained at a relatively low 245,000, and housing starts in May fell to their lowest level in five years.
- S&P 500: +1.7% YTD
- Nasdaq: +1.2% YTD
- DJIA: -0.9% YTD
- S&P 400: -3.1%
- Russell 2000: -5.3% YTD
Reviewing today's economic data:
- Initial jobless claims for the week ending June 14 decreased by 5,000 to 245,000 (Briefing.com consensus 253,000), while continuing jobless claims for the week ending June 7 decreased by 6,000 to 1.945 million.
- The key takeaway from the report is that it covers the week in which the survey for the June employment report is conducted, and with initial jobless claims still at a relatively low level, there will be a basis for economists to expect another decent gain in nonfarm payrolls (all things considered).
- Housing starts declined 9.8% month-over-month in May to a seasonally adjusted annual rate of 1.256 million units (Briefing.com consensus 1.356 million), while building permits declined 2.0% month-over-month to a seasonally adjusted annual rate of 1.393 million (Briefing.com consensus 1.411 million).
- The key takeaway from the report is that housing starts are weak, sitting at their lowest level since May 2020; moreover, a 2.7% month-over-month decline in single-unit permits doesn't connote an encouraging outlook for starts.
Digesting the Fed decision
18-Jun-25 15:30 ET
Dow -9.73 at 42206.07, Nasdaq +53.20 at 19574.30, S&P +5.53 at 5988.25
[BRIEFING.COM] There has been some volatility since the Fed decision and release of the Summary of Economic Projections at 2:00 p.m. ET, but we would venture to say that the market has not shown a strong reaction to the news. The S&P 500 is not far from where it was when the news hit at 2:00 p.m. ET.
Treasuries, on the other hand, saw their gains from earlier in the day wiped away, while the U.S. Dollar Index saw a pop that reflected an expectation for the Fed to continue to stand pat with its policy rate. The U.S. Dollar Index is up 0.1% to 98.90 after being down 0.3%.
Most S&P 500 sectors are still higher for the day but have faded back from higher levels seen before the Fed decision.
Weaker after Fed decision
18-Jun-25 15:00 ET
Dow -35.78 at 42180.02, Nasdaq -20.44 at 19500.66, S&P -8.80 at 5973.92
[BRIEFING.COM] The market is digesting the Fed's updated projections and comments from Fed Chair Powell, who is in the middle of his press conference to discuss the Fed's position.
His overarching message so far is much the same: there is a lot of uncertainty still, and the Fed will be waiting for more data to determine when to make a policy move. The translation here is that the Fed is still in a wait-and-watch mode and won't be cutting rates soon.
Stocks are a little weaker since the decision came out at 2:00 p.m. ET and Treasury yields are higher than they were before the 2:00 p.m. ET announcement.
The 2-yr note yield, which was at 3.90% just before the decision, is at 3.94% now, down one basis point from yesterday's settlement. The 10-yr note yield, at 4.35% just before the decision, is at 4.40% now, up one basis point from yesterday's settlement.
Fed holds rates steady, projects slower growth and sticky inflation as market eyes Powell remarks
18-Jun-25 14:30 ET
Dow +123.20 at 42339.00, Nasdaq +78.53 at 19599.63, S&P +17.48 at 6000.20
[BRIEFING.COM] As expected, the Federal Open Market Committee (FOMC) voted unanimously to leave the target range for the fed funds rate unchanged at 4.25-4.50%. The market was quick to dismiss that decision, though, turning its attention instead to the Summary of Economic Projections, which had some changes in it but not the changes the market (or the president, for that matter) wanted to see.
Specifically:
- The dot plot showed the median rate estimate at 3.90% for 2025, which continues to suggest an expectation that there will be two rate cuts before the end of the year.
- The median rate estimate for 2026 was moved up to 3.60% from 3.40%, and the median rate estimate for 2027 was bumped up to 3.40% from 3.10%.
- The median PCE inflation estimate for 2025 was increased to 3.0% from 2.7%, while the median core PCE inflation estimate rose to 3.1% from 2.8%.
- The median real GDP estimate for 2025 was lowered to 1.4% from 1.7%.
- The median unemployment rate estimate increased to 4.5% from 4.4%.
The policy directive continued to state that "inflation remains somewhat elevated." Dropped from the March directive was the comment that the committee "judges that the risks of higher unemployment and higher inflation have risen" and the view that "uncertainty about the economic outlook has increased further." The latter has been replaced by the observation that "uncertainty about the economic outlook has diminished but remains elevated."
The initial reaction to the FOMC decision and projections has been muted, suggesting that, while the market may not like the changes seen in the SEP, it wasn't necessarily surprised by them. Market participants are also sitting tight in front of Fed Chair Powell's press conference, which begins at 2:30 p.m. ET, and could contain some more market-moving cachet.
In terms of the Fed's thinking, though, the compilation of the policy directive and SEP leans in the direction of anticipating an economic environment that is closer to a stagflation environment than an environment of strong growth and tame inflation.
In brief, it also points to a Fed that is sticking by a wait-and-see approach.
Gold edges higher as soft data, Middle East tensions, and Fed anticipation lift demand
18-Jun-25 13:55 ET
Dow +137.73 at 42353.53, Nasdaq +85.64 at 19606.74, S&P +20.63 at 6003.35
[BRIEFING.COM] Down and up action in the major averages has us a hair above levels from half an hour ago, the tech-heavy Nasdaq Composite (+0.44%) still narrowly leading the modest advance.
Gold futures settled $1.20 higher (+0.04%) at $3,408.10/oz, supported by soft U.S. economic data that bolstered expectations for future Fed rate cuts. Geopolitical tensions in the Middle East and continued central bank buying also underpinned demand, while investors awaited clarity from today's FOMC decision.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $98.73.
GMS heads sharply higher as Q4 was better-than-feared and a bottom may be near (GMS)
GMS Inc. (GMS +12%) is heading sharply higher following a healthy EPS beat with its Q4 (Apr) report this morning. This building products distributor (wallboard, ceilings, steel framing etc.) reported a 5.6% yr/yr drop in revenue to $1.33 bln, however, that was in-line with the single analyst estimate.
- The company is pleased with its Q4 and FY25 results, despite deterioration in its end market conditions as it moved through the fiscal year. GMS said that commercial activity continues to be negatively impacted by high interest rates, the lack of available financing and general economic uncertainty contributing to soft starts and mixed results among commercial applications. GMS expects this dynamic to continue but moderate, with some recovery in its business towards the first half of calendar 2026.
- Despite pressures, there were areas of strength. Within commercial, current category strength continues to come from larger projects and those that are not as dependent on private financing, particularly those in public education, health care, and technology. Notably, a data center backlog extends well into 2026, and there is no indication of these projects slowing down in the near term.
- Also, GMS posted Q4 volume growth for Ceilings and Complementary Products. Ceilings performed particularly well given the continued benefits of the addition of its Kamco Supply acquisition. In addition, GMS has focused more on architectural specialties projects, which have higher average unit pricing. In Steel Framing, as suppliers navigate the latest tariff actions, GMS has received notices of upcoming manufacturer price increases.
A key statement that stood out to us was GMS saying it's cautiously optimistic that it is nearing the bottom of the cycle, although the intensity and duration of the downturn will vary by each end market. High interest rates and policy uncertainty are the primary impediments to growth. These factors are causing homebuyers to retreat to the sidelines, multifamily and commercial developers to pause or delay starts, and regional banks to increase commercial lending requirements for new projects and lend less overall.
Given all the macro headwinds, we think investors are pleased with GMS's Q4 report and its comments about FY26. GMS's market appears it will remain difficult in the near term, but management did provide some measure of optimism, saying it's nearing a bottom in the cycle.
Nucor and Steel Dynamics diverge in their guidance, but both say selling prices are rising (NUE)
Nucor (NUE +4%) and Steel Dynamics (STLD -1%) tend to both provide EPS guidance around the middle of the last month each quarter. And that was the case again this quarter. It was a little different this time because Nucor guided higher but Steel Dynamics guided lower. The two steelmakers tend to guide in the same direction, but not always.
- Nucor guided to Q2 EPS of $2.55-2.65, which was a good bit above analyst expectations. We did not get a ton of color from Nucor, but it did say earnings are expected to increase across all three of its operating segments, with the largest increase in the steel mills segment, which benefitted from higher average selling prices at its sheet and plate mills.
- On the other hand, Steel Dynamics guided to Q2 EPS of just $2.00-2.04, which is well below analyst expectations.
- Q2 profitability from its steel operations is expected to be significantly stronger than Q1, as metal spreads expanded with steel pricing increasing more than scrap raw material costs. Long product steel shipments improved sequentially, with flat rolled volumes contracting modestly due primarily to an inventory overhang from coated flat rolled steel imports.
- In terms of end markets, Steel Dynamics said that energy, non-residential construction, automotive, and industrial sectors continue to lead demand.
Despite the divergent guidance, the key similarity is that both steel companies are benefitting from higher selling prices. Also, selling prices appear to be increasing faster than scrap costs (a key input for mini-mills), which is resulting in expanding metal spreads. It just sounds like STLD is being impacted by a company-specific inventory overhang on the flat-rolled side. Taken all together, we think this guidance is generally positive for steelmakers.
La-Z-Boy roughly flat on mixed quarter, macro concerns and slow housing market hurts (LZB)
La-Z-Boy (LZB +1%) is trading roughly flat after wrapping up FY25 on a mixed note. This furniture retailer and manufacturer missed slightly on EPS for Q4 (Apr), but revenue grew 3.1% yr/yr to $570.9 mln, which was above the high end of prior guidance of $545-565 mln. However, the mid-point of Q1 (Jul) revenue guidance at $490-510 mln was light of analyst expectations. In fairness, Q1 is generally LZB's lowest sales and margin quarter of the year.
- The growth driver in Q4 was its Retail segment, with delivered revs up 8% yr/yr to $247 mln, led by new stores and acquisitions. During the quarter, LZB opened its 200th company-owned La-Z-Boy Furniture Galleries store, and it now owns 55% of the total network. Written same-store sales for Retail declined -5%, a notable drop from +7% in Q3 and -1% in Q2. LZB cited continued weakness in industry traffic, partially offset by higher average ticket and design sales.
- Wholesale segment sales (includes intersegment sales) increased 2% to $402 mln, driven by growth in its core North America La-Z-Boy wholesale business partially offset by the continued impact of a significant customer transition in its international wholesale business.
- In its digitally-native Joybird business, written sales trends decreased 21% yr/yr in Q4. LZB believes the Joybird consumer has been more significantly impacted by rising macro uncertainty and that this pressure is likely to persist in the near term. LZB says it's making appropriate adjustments to navigate during this time. Notably, LZB is seeing relatively stronger written trends in its Joybird physical stores where it can more fully serve the consumer.
- LZB said that stubbornly high mortgage rates and increased volatility in the economy negatively influenced consumer sentiment in Q4, which, hurt industry traffic. LZB expects economic uncertainty to continue challenging consumers in the near term. However, management noted that La-Z-Boy is an iconic brand in a highly fragmented market and it has navigated challenging times throughout its history. Also, a strong balance sheet helps.
- In terms of tariffs, approximately 90% of LZB's upholstered units sold in North America are produced in the US, with its Mexican operations supporting most of the balance. The vast majority of the products produced and exported out of Mexico are US MCA compliant and therefore not subject to tariffs. So that does not seem to be a big issue for them.
Overall, this was a pretty mixed quarter. Sales were much stronger than expected, especially later in the quarter. However, EPS was a bit weak and the guidance could have been better. Unfortunately, LZB is being impacted by a constrained consumer, who is looking at the macro picture and holding off on buying new furniture. Also, new home purchases are usually a big catalyst to buy new furniture, but the housing market is slow. So this is a rough time for LZB.
Surgery Partners heads lower after failing to reach a buyout deal with Bain Capital (SGRY)
- Surgery Partners (SGRY -12%) is under pressure today after announcing it had concluded buyout discussions with Bain Capital without a deal being agreed to.
- Recall that in January, Bain Capital approached SGRY with a proposal to buy the company for $25.75 per share. Bain Capital is already a major shareholder and sought to acquire the remaining shares in SGRY it does not already own, but the two sides could not reach a deal.
- This operator of surgery centers, where patients can go for procedures outside of a hospital setting, ultimately determined that its prospects were better as an independent publicly traded company. SGRY cited its strong Q1 performance and noted that it's benefitting from favorable surgical trends and a bullish outlook on the regulatory landscape.
- We had thought that possible cuts in Medicaid might spur SGRY to make a deal. However, on its Q1 call last month, SGRY downplayed concerns about possible funding changes in Medicaid and exchange-based reimbursement programs as part of the currently debated tax bill. SGRY noted that its exposure to these payer groups is less than 5% of revenue, and it does not consider prospective changes to either program as a risk to its short or long-term growth prospects.
- Overall, SGRY sounded pretty confident about its ability to continue on its own as it reaffirmed its FY25 guidance this morning.
- Also, the $25.75 price tag did not offer much of a premium, even from where it was trading in late January. We were a little surprised that Bain Capital did not counter with a higher bid. Perhaps the fact that Bain did not do that is adding to today's slide in the share price.
Humana showing notable strength given its high exposure to Medicare Advantage (HUM)
- Most healthcare stocks are right around unchanged today, but Humana is showing more strength than others following the release of the Senate tax bill plan last night.
- The Senate bill makes larger cuts to Medicaid spending by setting Medicaid provider tax at 3.5% (House version of the bill set it at above 6%). However, the bill omitted Medicare Advantage cuts.
- It's this last part that is likely pushing HUM higher today.
- Humana is considered the health insurer most exposed to Medicare Advantage.
- In its 10-K, HUM disclosed that, in 2024, 75.6% of its revs came from Individual Medicare Advantage. Then when you add 6.6% of revs coming from Group Medicare Advantage, that adds up to 82.2% of revs.
- As such, investors see the Senate not touching Medicare Advantage as great news for Humana.
- However, keep in mind the bill is far from being finalized and the House needs to weigh in. However, this was a positive sign for Humana.
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