Market Snapshot
| Dow | 42392.27 | -151.95 | (-0.36%) | | Nasdaq | 19280.79 | -30.00 | (-0.16%) | | SP 500 | 5868.55 | -13.08 | (-0.22%) | | 10-yr Note | -1/32 | 4.58 |
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| | NYSE | Adv 1524 | Dec 1228 | Vol 847 mln | | Nasdaq | Adv 2429 | Dec 1931 | Vol 8.7 bln |
Industry Watch
| Strong: Energy, Communication Services, Utilities |
| | Weak: Consumer Discretionary, Materials, Real Estate, Consumer Staples, Information Technology |
Moving the Market
-- Jump in market rates coinciding with stock market moving lower
-- Losses in AAPL, TSLA weighing down equity indices
-- Ongoing strength in US dollar, which can be a drag on earnings for multinational companies, contributing to weakness
-- Rebalancing activity and new inflows to start the year
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Closing Summary
02-Jan-25 16:25 ET
Dow -151.95 at 42392.27, Nasdaq -30.00 at 19280.79, S&P -13.08 at 5868.55
[BRIEFING.COM] The stock market experienced some turbulence on the first session of the year. The major indices initially moved higher, bolstered by buy-the-dip trading after a soft close to 2024 and some rebalancing activity at the start of the year. Rising rates and mega cap losses drove the major indices lower around mid-day, though. The stock market ultimately closed off session lows and losses weren't very pronounced.
The S&P 500 which traded up as much as 0.9%, closed 0.2% lower. The Nasdaq Composite settled with a 0.2% decline after trading up as much as 1.1% at its intraday high. Small cap stocks outperformed their larger peers, leading the Russell 2000 to close 0.1% higher.
Apple (AAPL 243.85, -6.57, -2.6%) and Tesla (TSLA 379.28, -24.56, -6.1%) extended early declines as the major indices moved to session lows. Apple shares reacted to some cautious comments on iPhone demand from the analyst at UBS. Tesla's weakness followed its Q4 deliveries report, which put a cap on the company's first annual decline in deliveries. Microsoft (MSFT 418.58, -2.92, -0.7%) was another influential loser with no specific catalyst, turning lower after trading up as much as 1.1% at its intraday high.
Losses in the aforementioned names contributed to losses in their respective S&P 500 sectors. The consumer discretionary sector was the worst performer, dropping 1.3%, and the information technology sector logged a 0.2% gain.
Gains in its semiconductor-related components provided some offsetting support to the info tech sector. This price action also led the PHLX Semiconductor Index (SOX) to settle with a 0.8% gain.
The energy sector was a winning standout, jumping 1.0% as commodity prices climbed. WTI crude oil futures settled 1.9% higher at $73.11/bbl and natural gas futures rose 1.6% to $3.15/mmbtu.
Treasuries settled with losses, which contributed to the downside bias in equity indices. The 2-yr yield settled one basis point higher at 4.25% after hitting 4.20% earlier and the 10-yr yield settled one basis point higher at 4.58% after hitting 4.51%.
The ongoing strength in the dollar, which can be a drag on earnings for multinational companies, was another contributing factor in the downside bias. The U.S. Dollar Index was up 0.9% to to 109.33, hitting its highest level since September 2022. This was largely at the expense of the euro (EUR/USD -1.0% to 1.0252), which keeps sinking on growth and policy rate divergences.
- Russell 2000: +0.1% YTD
- Nasdaq Composite: -0.2% YTD
- S&P 500: -0.2% YTD
- S&P Midcap 400: -0.2% YTD
- Dow Jones Industrial Average: -0.4% YTD
Reviewing today's economic data:
- Initial jobless claims for the week ending December 28 decreased by 9,000 to 211,000 (Briefing.com consensus 224,000) while continuing jobless claims for the week ending December 21 decreased by 52,000 to 1.844 million.
- The key takeaway from the report is the low level of initial claims -- a leading indicator -- as that connotes a situation where employers are reluctant to let employees go, which goes hand-in-hand with an optimistic view of business prospects.
- Total construction spending was unchanged month-over-month in November (Briefing.com consensus 0.2%) following an upwardly revised 0.5% increase (from 0.4%) in October. Total private construction was up 0.1% month-over-month while total public construction declined 0.1% month-over-month. On a year-over-year basis, total construction spending was up 3.0%.
- The key takeaway from the report is that there wasn't much impulse for construction spending in November, particularly on the nonresidential side of things.
- December S&P Global US Manufacturing PMI - Final checked in at 49.4 versus the preliminary reading of 48.3 and the final November reading of 49.7. The dividing line between expansion and contraction is 50.0, so the December PMI represents activity contracting at a slightly faster pace than the prior month.
- The MBA Mortgage Applications Index was down 21.9% from two weeks before with refinance applications down 36% and purchase applications down 13% (note: this data is usually released on a weekly basis, so the actuals, which aren't necessarily good, also aren't as bad as they appear at first blush)
Looking ahead to Friday, market participants receive the following economic data:
- 10:00 ET: December ISM Manufacturing Index (Briefing.com consensus 48.5%; prior 48.4%)
- 10:30 ET: EIA Natural Gas Inventories (prior -93 bcf)
Treasury yields settle slightly higher
02-Jan-25 15:35 ET
Dow -167.56 at 42376.66, Nasdaq -74.71 at 19236.08, S&P -20.20 at 5861.43
[BRIEFING.COM] The three major indices have traded in narrow ranges over the last half hour.
Treasuries settled with losses. The 2-yr yield settled one basis point higher at 4.25% and the 10-yr yield settled one basis point higher at 4.58%.
Looking ahead to Friday, market participants receive the following economic data:
- 10:00 ET: December ISM Manufacturing Index (Briefing.com consensus 48.5%; prior 48.4%)
- 10:30 ET: EIA Natural Gas Inventories (prior -93 bcf)
Chipmakers outperform while mega caps lag
02-Jan-25 15:05 ET
Dow -167.12 at 42377.10, Nasdaq -114.22 at 19196.57, S&P -32.14 at 5849.49
[BRIEFING.COM] The major indices moved mostly sideways in recent trading. The Nasdaq Composite sports a 0.6% decline.
Semiconductor stocks have outperformed the broader equity market through the entire session. The PHLX Semiconductor Index (SOX) shows a 0.4% gain. NVIDIA (NVDA 137.33, +3.04, +2.3%) and Broadcom (AVGO 232.11, +0.22, +0.1%) are influential winners from the space.
The S&P 500 information technology sector sports a 0.7% decline despite gains in chipmaker components due to losses in Apple (AAPL 242.35, -8.07, -3.2%) and Microsoft (MSFT 417.38, -4.12, -1.0%).
S&P 500 dips, GM, Eastman, and LVS struggle; Vistra Corp. leads gains
02-Jan-25 14:30 ET
Dow -225.32 at 42318.90, Nasdaq -100.04 at 19210.75, S&P -28.60 at 5853.03
[BRIEFING.COM] The S&P 500 (-0.49%) is ever-so-slightly better than where it was half an hour ago, still down about 29 points.
Briefly, S&P 500 constituents General Motors (GM 51.13, -2.14, -4.02%), Eastman Chemical (EMN 88.38, -2.94, -3.22%), and Las Vegas Sands (LVS 49.84, -1.52, -2.96%) dot the bottom of the standings. GM is weaker alongside fellow auto manufacturing peers after Tesla's (TSLA 378.45, -25.39, -6.29%) deliveries disappointed, while LVS dips after Macau gaming data registered a 2% dip in December revs.
Meanwhile, Vistra Corp. (VST 147.46, +9.59, +6.96%) is today's top performer despite a dearth of corporate news.
Gold hits two-week high amid market decline and geopolitical tensions
02-Jan-25 14:00 ET
Dow -335.58 at 42208.64, Nasdaq -173.18 at 19137.61, S&P -47.46 at 5834.17
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.90%) is down about 173 points on Thursday afternoon, hovering just off session lows.
Gold futures settled $$28 higher (+1.1%) to $2,669.00/oz, jumping to a two-week high amid safe-haven demand and geopolitical tensions ahead of President-elect Trump's inauguration.
Currently, the U.S. Dollar Index is up +1.1% to $109.33.
Tesla's U-turn continues into 2025 after reporting disappointing Q4 deliveries (TSLA)
Powered by Elon Musk's allegiance to president-elect Donald Trump, Telsa (TSLA) charged to record highs by mid-December on the expectation that the incoming Trump administration would take a relaxed regulatory approach to TSLA's robotaxi aspirations. However, TSLA shares abruptly reversed course over the past week, ending 2024 on a sour note, and that weakness has carried over into 2025 after the EV maker reported disappointing Q4 deliveries. Meanwhile, the company's Chinese counterparts, such as BYD Company (BYDYY), NIO (NIO), ZEEKR (ZK), and XPeng (XPEV), continued to achieve robust delivery growth in December as the PRC government throws its weight behind new energy vehicles by offering incentives and subsidies.
- TSLA's deliveries grew by about 2% yr/yr to 495,570 vehicles in Q4, setting a new company record, but falling a bit short of analysts' expectations. The miss comes even as TSLA ramped up its own discounts and incentives in a year-end push to meet its forecast of positive sales volume growth in Q4. With the Q4 delivery shortfall, TSLA also suffered its first annual decline in deliveries, which slipped by 1.1% yr/yr to 1.79 mln vehicles for 2024.
- A combination of slowing EV demand and intensifying competition, especially in China, are taking a toll on TSLA. On that note, BYDYY reported that its sales volume jumped by over 41% in December to 514,809 vehicles, lifting its total volume to about 1.76 mln units for the year. With BYDYY now right on TSLA's tail, the company is poised to overtake TSLA and become the world's largest EV maker this year.
- XPeng (XPEV), another rising competitive threat to TSLA, saw deliveries soar by 82% yr/yr in December to 36,695 vehicles. Despite the stiff macroeconomic headwinds and associated slowdown in EV demand, XPEV and other Chinese EV makers have aggressively launched new models in an effort to gain market share. This past August, XPEV launched its more affordable MONA sub-brand when its first model, the MONA M03 hatchback coupe, entered the market. In December, deliveries of the MONA M03 exceeded 15,000 units.
- By utilizing the same main platform to develop different models, Chinese EV makers are able to significantly reduce the amount of time it takes to update vehicles or to even launch entirely new models. This standardized approach helped NIO to launch its new family-oriented ONVO brand last May. After achieving deliveries of 5,082 in December, ONVO generated deliveries of 10,582 in December, helping to push NIO's total deliveries higher by 73% to 31,138 for the month.
The main takeaway is that TSLA appears to have lost more ground to its competitors in Q4, even after ramping up discounts and incentives. However, with TSLA preparing to launch a lower-priced model in 2025, the company should be in line to return to solid delivery growth again this year.
H.B. Fuller heads lower on downside guidance, volume trends remain a headwind (FUL)
HB Fuller (FUL -8%) is heading lower today after lowering FY24 (Nov) adjusted EPS and adjusted EBITDA guidance. This follows an earnings miss in Q3 (Aug) with downside guidance. As the largest pureplay adhesives company in the world, FUL is being impacted by a weak manufacturing environment. Customers use its adhesives products in making all types of common consumer and industrial goods.
- The silver lining is that FY24 revenue guidance was generally in-line. However, what stood out to us was that FUL lowered its full year adjusted EPS guidance quite substantially to $3.84 from $4.10-4.20 and for adjusted EBITDA to $594 mln from $610-620 mln. There is only one quarter left, so that means Q4 (Nov) came in well below expectations.
- FUL said that Q4 revs and earnings were impacted by weaker-than-expected conditions and delayed orders, particularly in consumer product goods and packaging related end markets as well as durable goods distribution. In addition, delayed customer order patterns shifted price increase realization into FY25 while higher raw material costs, primarily in Hygiene, Health and Consumable (HHC) Adhesives, impacted adjusted EBITDA.
- Specifically, late in Q4, there was a negative inflection point on volume whereby a number of market segments exhibited topline deceleration vs Q3. This follows similar commentary from the Q3 call when FUL said volume growth came in at the low end of expectations due to slowing market demand in certain durable goods-related market segments.
- Volume growth was relatively stable sequentially in Q3, but FUL had been anticipating incremental strengthening throughout the year. But today's guidance looks like hope for a volume recovery will be pushed into FY25. It was also disappointing to hear that its HHC segment performance was a bit weak. On the Q3 call, FUL said HHC organic revenue development continued to improve significantly, driven by strength in bottle labeling, packaging, and medical.
Overall, this guidance was a letdown for HB Fuller. However, we suspect it was not a total surprise given the pullback in the stock in December. We think the main catalyst was interest rates rising in December, which may have caused customers to pull back on orders and investors responded by sending shares about 12% lower last month.
One thing to understand about FUL is that raw material costs make up roughly 75% of its cost of sales. As such, FUL estimates that even a 1% change in its raw material costs has a $0.24 impact on EPS, which helps explain the big drop in EPS guidance. And many of its raw materials are petroleum and natural gas based derivatives. Rising oil and natural gas prices in December could impact the start of its FY25. What FUL really needs is for rates to come down and for industrial / manufacturing activity to pick up, not only to drive volume but also to improve margins by spreading costs over a larger revenue base.
Synaptics receives positive feedback for its collaboration with Google (GOOG) on edge AI (SYNA)
The feedback surrounding Synaptics' (SYNA +5%) collaboration with Google (GOOG) on edge AI today is overwhelmingly positive, helping the touchpad and fingerprint manufacturer kick off 2025 on the right foot. SYNA is best known for inventing the laptop touchpad and smartphone touch display sensors. However, in recent years, SYNA has largely focused on the IoT (internet-of-things) market, flipping its roughly 60% exposure from the mobile industry to IoT. The drastic shift produced considerable revenue growth and margin expansion. Unfortunately, it did not last long as a sharp slowdown in global demand during the end of 2022, lasting through the past two years, caused inventories to pile up, squeezing revenue and profitability.
While trying to bounce back, headwinds have lingered for SYNA, resulting in a 30% correction in 2024. Management mentioned in November that inventory is still being worked down across certain products, such as its video interface portfolio, which remains 40% or more below the normal run rate. Likewise, the PC market, while stable, is not growing as expected.
However, IoT has been a silver lining, recently boasting a 55% surge in revs yr/yr in Q1 (Sep). At the same time, several encouraging trends have cropped up, leading to SYNA holding a glass-half-full view for 2025.
- The AI wave is expected to continue in 2025. SYNA's collaboration with GOOG showcases the company's product appeal, bringing AI capability to edge devices at competitive price points. The partnership aims to integrate GOOG's machine learning (ML) core on SYNA's Astra hardware -- an AI-native IoT processor platform -- accelerating AI development to support vision, image, voice, and sound processing for a host of IoT devices, including smart home and appliances, wearables, and industrial systems.
- The PC market may not have grown as SYNA anticipated last year. However, the company is optimistic about 2025 being a growth year for the industry, pointing to Windows 10 end-of-life (the operating system will no longer be supported this October) and new AI PCs. Dell (DELL) commented in November that it was noticing an indication that customers were lining up their upgrade cycles with new AI PCs in 1H25. Given SYNA's dominance with fingerprint sensors and touchpads, it directly benefits from an uptick in PC sales.
- In mobile, SYNA's touch controllers, aligned with the premium end of the Android market, have recently enjoyed increasing strength. SYNA noted that it continues winning replacement designs and sees opportunities down-market with some OEMs.
There is a nagging problem for SYNA. The automotive market deteriorated last quarter. SYNA cautioned that, due to a broader market slowdown and delays in adopting new technologies, this sector could drag its feet in mounting any noticeable recovery in 2025. However, with IoT experiencing resilience in recent quarters, SYNA capturing market share in high-performance Wi-Fi, and enterprise product sales, such as PCs, showing signs of growth, SYNA is poised for a comeback in 2025.
Alibaba ticks higher today; looking to slash AI-related prices as competition heats up (BABA)
Alibaba (BABA) is enjoying modest appreciation today after Reuters reported that the China-based e-commerce and cloud giant would be looking to enact an up to 85% price slash on large language models (LLMs), a popular type of conversational AI. The price cut would be aimed toward BABA's Qwen-VL, a multimodal LLM-based AI assistant that touts a technological edge over other LLMs, like GPT-4o, specifically surrounding video processing.
- The price cut underscores an increasingly competitive landscape as industries turn to the numerous AI-focused tech firms in China and internationally to enhance their competitiveness and efficiency. The AI frenzy has been a significant driver of BABA's improving Cloud segment revenue growth over the past few quarters, recently boasting a 7% jump in Q3 compared to a +6% and +3% improvement in Q2 and Q1, respectively. As such, other companies have rapidly developed LLMs of their own, looking to get in on lucrative AI action.
- Baidu (BIDU), often referred to as the Google of China, is focused on advancing its AI capabilities, serving as the cornerstone of its AI-driven transformation. The company's flagship ERNIE 4.0 Turbo model was recently shown to increase throughput by 48% compared to its debut in June, a significant improvement in just a few months. Likewise, Tencent (TCEHY), a prominent multi-media firm based in China, expressed its commitment to continuously investing in AI technology and tools.
- BABA was confident that its Cloud division would return to double-digit growth over the medium to long term. The company is constantly allocating capital to intensive R&D, aiming to be the leading cloud service provider for AI. Cutting prices, while adversely impactful to near-term revenue, may be the right move to ensure it can reach market dominance.
Shares of BABA have been in a slump since reaching one-year highs in early October following stimulus measures from the Chinese government, pulling back by around 28%. Moving into 2025, BABA must contend with increasing AI competition while battling a deteriorating economy, hindering growth in its e-commerce business. Competition is also intensifying in e-commerce, forcing BABA to battle headwinds on multiple fronts. As a result, the year ahead for BABA could bring considerable volatility, with future performance potentially dependent on further government stimulus.
Intapp caters to an underserved market and is growing in scale (INTA)
Intapp (INTA) has been a huge mover since mid-August when it reported robust Q4 (Jun) earnings. That was followed up with an impressive beat-and-raise in Q1 (Sep) in early November. Since the name is now well known, we wanted to provide some quick color on Intapp. It's a provider of subscription-based cloud software for the professional and financial services industry.
- Its clients are typically large partnership firms in legal, accounting, consulting, investment banking, private capital, and real assets. This is a generally underserved market. Intapp sees the professional and financial services industry as being historically overlooked by the traditional CRM/ERP enterprise companies because they are designed more for the manufacturing model and not for this partnership services oriented model.
- Intapp believes it operates in an attractive market because its clients are relatively separate from the business cycle. The lawyers always get paid. The accountants always get paid in good times and bad. These are relatively stable businesses. Intapp says its clients are also technologically pretty far behind. They have not benefited from basic cloud transformations, or the types of digital transformations that a lot of the rest of the economy has because there was not something really available that was purpose built for them.
- Intapp has successfully grown the business pretty consistently over many years. And it's finally getting to a scale where it can start to serve the big fish, the global institutional firms. This was one of the reasons INTA chose to bring the company public. Also, Intapp is growing internationally, comprising 34% of SepQ revenue, up from 31% a year ago.
- In SepQ, revenue grew a healthy 17% yr/yr to $118.8 mln, driven primarily by sales of its cloud platform. Of note, SaaS revenue growth was even more robust, up 30% yr/yr to $77 mln, driven by new client acquisitions, contract expansions, and the migration of on-premise products to the cloud. Approx 92% of its clients have adopted at least one cloud module. Cloud ARR was $309.1 mln, up 27% yr/yr and it represented 74% of total ARR vs 69% a year ago.
Overall, Intapp seems to be finally hitting more radar screens for investors. We like their niche target market that is underserved and is still in the early days in terms of migration to the cloud. What is nice is that its clients are the type of clients that always get paid even during a economic downturn. Also, Intapp is improving its AI functionality and has a nicely growing international business.
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