Market Snapshot
| Dow | 42635.20 | +106.84 | (0.25%) | | Nasdaq | 19478.87 | -10.80 | (-0.06%) | | SP 500 | 5918.25 | +9.22 | (0.16%) | | 10-yr Note | 0/32 | 4.68 |
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| | NYSE | Adv 1181 | Dec 1510 | Vol 1.0 bln | | Nasdaq | Adv 1475 | Dec 2886 | Vol 8.9 bln |
Industry Watch
| Strong: Health Care, Materials, Consumer Staples, Real Estate, Industrials, Financials, Consumer Discretionary |
| | Weak: Communication Services, Utilities, Energy |
Moving the Market
-- Rising rates remain top of mind after 10-yr yield reached 4.73% earlier, keeping buyers sidelined in the equity market
-- Technical levels in play after the S&P 500 dropped below its 50-day moving average (5,952) yesterday
-- Choppy action in mega caps weighing down broader market
-- Responding to this morning's economic data and the FOMC Minutes for the December 17-18 meeting
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Closing Summary
08-Jan-25 16:30 ET
Dow +106.84 at 42635.20, Nasdaq -10.80 at 19478.87, S&P +9.22 at 5918.25
[BRIEFING.COM] It was a choppy session in the stock market. Participants were dealing with rising rates (10-yr yield hitting 4.73% at its high), volatile mega caps, and some economic releases. Ultimately, the S&P 500 settled 0.2% higher and the Dow Jones Industrial Average rose 0.3% while the Nasdaq Composite declined 0.1%.
The Treasury market settled little changed from yesterday after a choppy session. The 10-yr yield rose one basis point to 4.69% and the 2-yr yield settled one basis point lower at 4.29%. Treasuries were responding to this morning's economic releases, along with today's $22 billion 30-yr bond reopening, which met strong demand.
The economic data included a below-consensus ADP Employment Change report for December (122,000; Briefing.com consensus 131,000), and an unexpected drop in weekly Initial Claims (201,000; Briefing.com consensus 218,000; prior 211,000).
Market participants also received the FOMC Minutes for the December 17-18 meeting, which echoed Fed Chair Powell's remarks in his press conference after the meeting. The minutes conveyed a belief that the Fed should hold off on another rate cut until it has more confidence in inflation returning to its 2% target and/or more concern about the labor market deteriorating in a more pronounced manner.
Stocks and bonds took the release in stride while the fed funds futures market repriced rate cut expectations. The fed funds futures market now sees only a 40.4% probability of a 25-basis points rate cut at the March FOMC meeting versus 53.0% a week ago and 69.1% a month ago, according to the CME FedWatch Tool.
As a reminder, the NYSE is closed tomorrow in observance of the National Day of Mourning in honor of late former President Jimmy Carter.
- Nasdaq Composite: +0.9% YTD
- S&P Midcap 400: +0.7% YTD
- S&P 500: +0.6% YTD
- Russell 2000: +0.4% YTD
- Dow Jones Industrial Average: +0.2% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications -3.7%; Prior -21.9%
- December ADP Employment Change 122K (Briefing.com consensus 131K); Prior 146K
- Weekly Initial Claims 201K (Briefing.com consensus 218K); Prior 211K, Weekly Continuing Claims 1.867 mln; Prior was revised to 1.834 mln from 1.844 mln
- The key takeaway from the report is that layoff activity is low, but for employees that lose their job it has become more challenging to find a new one.
- November Wholesale Inventories -0.2% (Briefing.com consensus -0.2%); Prior was revised to 0.0% from 0.2%
- November Consumer Credit -$7.49 bln (Briefing.com consensus $9.1 bln); prior revised to $17.3 bln from $19.2 bln
- The key takeaway from the report is that consumer credit contracted in November for only the third time in the past 16 months with revolving credit, which is subject to extra high interest rates, acting as the drag.
Treasuries settle little changed from yesterday after turbulent day
08-Jan-25 15:35 ET
Dow +39.66 at 42568.02, Nasdaq -34.35 at 19455.32, S&P -63.91 at 5845.12
[BRIEFING.COM] The stock market continues to chop around, leading the major indices to trade near yesterday's closing levels.
Consumer credit decreased by $7.5 billion in November (Briefing.com consensus $9.1 billion) after increasing a downwardly revised $17.3 billion (from $19.2 billion) in October.
The key takeaway from the report is that consumer credit contracted in November for only the third time in the past 16 months with revolving credit, which is subject to extra high interest rates, acting as the drag.
Separately, the Treasury market settled little changed from yesterday after a choppy session. The 10-yr yield rose one basis point to 4.69% and the 2-yr yield settled one basis point lower at 4.29%.
Consumer credit decreased in Nov.
08-Jan-25 15:05 ET
Dow +23.97 at 42552.33, Nasdaq -19.85 at 19469.82, S&P +1.52 at 5910.55
[BRIEFING.COM] The market continues to move in a volatile fashion. The &SP 500 trades less than two points higher than yesterday.
Mega cap stocks have taken a leadership role again, driving the Vanguard Mega Cap Growth ETF (MGK) to trade 0.2% higher.
Separately, consumer credit decreased by $7.49 billion in November (Briefing.com consensus $9.1 billion) following a $17.3 billion increase in October (revised from $19.2 billion). Treasury yields haven't moved much in response. The 10-yr yield is at 4.69% and the 2-yr yield is at 4.28%.
Markets whipsaw as FOMC Minutes signal slower rate cuts and extended balance sheet runoff
08-Jan-25 14:30 ET
Dow +67.09 at 42595.45, Nasdaq +18.64 at 19508.31, S&P +10.03 at 5919.06
[BRIEFING.COM] Whipsaw action in the markets this past half hour followed the release of the FOMC's Minutes from the December meeting which showed that the vast majority of participants viewed it as appropriate to lower the target range for the federal funds rate by 25 basis points to 4¼ to 4½ percent.
Currently, the S&P 500 (+0.17%) is at afternoon highs and atop its fellow major averages.
Other important points from the Minutes included: In discussing the outlook for monetary policy, participants indicated that the Committee was at or near the point at which it would be appropriate to slow the pace of policy easing. They also indicated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would be appropriate to continue to move gradually toward a more neutral stance of policy over time... In addition, many participants suggested that a variety of factors underlined the need for a careful approach to monetary policy decisions over coming quarters.
What's more, the average estimate of survey respondents for the timing of the end of balance sheet runoff shifted a bit later, to June 2025. This shift mainly reflected revisions to estimates by respondents who had expected balance sheet runoff to end in the last quarter of 2024 or in early 2025.
The Minutes also showed that, after incorporating the recent data and preliminary placeholder assumptions about potential policy changes, real GDP growth was projected to be slightly slower than in the previous baseline forecast, and the unemployment rate was expected to be a bit higher but to remain near the staff's estimate of its natural rate.
Yields have come off a bit from their pre-Minutes levels, the yield on the benchmark 10-yr note now little changed on the session at 4.691%, vs. 4.707% before the Minutes.
Markets retreat ahead of FOMC Minutes, gold rises as weak job data sparks rate cut hopes
08-Jan-25 13:55 ET
Dow -101.00 at 42427.36, Nasdaq -69.97 at 19419.70, S&P -14.41 at 5894.62
[BRIEFING.COM] The markets have retreated quickly, the Nasdaq Composite (-0.36%) now down 70 points ahead of the FOMC's Minutes from its December meeting at the top of the hour.
Gold futures settled $9.60 higher (+0.4%) to $2,675/oz, reaching a near four-week high as weak job data fuels hopes for rate cuts.
Currently, the U.S. Dollar Index is up about +0.4% to $109.08.
Acuity Brands edges higher after exceeding Q1 earnings estimates, raising FY25 guidance (AYI)
Acuity Brands (AYI) looks to shine today after exceeding Q1 (Nov) earnings estimates. The lighting and light control product supplier also boosted its adjusted operating margins in the quarter, benefiting from product vitality, price management, and productivity improvements. Additionally, AYI bumped its FY25 (Aug) guidance higher after incorporating its recently closed acquisition of QSC last week. However, a slight miss on its top line in the quarter may be keeping a lid on the stock today. It is important to note that shares gained roughly +50% in 2024, opening the door to modest profit-taking.
- Headline numbers were still solid in Q1. AYI expanded its bottom line by 7% yr/yr to $3.97, supported by a 20 bp bump in adjusted operating margins to 16.7%. Revenue inched 1.8% higher yr/yr to $951.6 mln, relatively consistent with AYI's +2.2% growth delivered last quarter. It also marked back-to-back quarters of positive growth following five straight periods of declining sales.
- Both AYI's segments experienced growth, with Lighting climbing by 1.1% to $886.0 mln while Intelligent Spaces swelled by $14.5% to 73.5 mln.
- In Lighting, AYI has stepped up its efforts to deliver a more consistent and predictable performance each quarter by leveraging technology that offers multiple functionalities. This allows distributors to carry fewer SKUs while providing more options for consumers.
- In Intelligent Spaces, AYI is capitalizing on customers opting for smarter working and living spaces. The company is also penetrating additional markets, adding capacity in the U.K., Asia, and Australia.
- In October, AYI purchased QSC, a cloud-manageable audio and video control platform, for $1.215 bln, representing around 14x QSC's estimated trailing twelve-month EBITDA. AYI anticipated the acquisition to be accretive to its FY25 adjusted EPS. With the purchase closing last week, AYI updated its FY25 forecast to include QSC, targeting revs of $4.3-4.5 bln, up from $3.9-4.1 bln and adjusted EPS of $16.50-18.00, up from $16.00-17.50.
AYI's Q1 report may not be shining all that brightly today. However, the company registered sound results that may be enough to keep its stock trending positively over the near term. The inclusion of QSC fortifies AYI's Intelligent Spaces segment, allowing the firm to now possess the opportunity to control the building and what happens in the space, bringing a unique combination of data collection and the ability to control that data. While Lighting revenue growth may remain sluggish over the next few quarters as the retail side drags its feet, management was optimistic about 2025 being a better year for the business than 2024, potentially supporting a string of positive yr/yr sales growth in the coming quarters.
MSC Industrial trades higher on strong earnings beat but manufacturing outlook remains tepid (MSM)
MSC Industrial Supply (MSM +6%) is trading higher following its Q1 (Nov) earnings report this morning. This distributor of metalworking and MRO products bounced back nicely from an EPS miss in Q4 (Aug) to report a double-digit EPS beat this morning. Revenue fell 2.7% yr/yr to $928.5 mln, but that was much better than analyst expectations. MSM is a company that Briefing.com keeps an eye on because it provides a glimpse into the industrial economy. Roughly 45% of its sales are metalworking products, and about 70% of its business is sold into manufacturing environments, both light and heavy.
- ADS (average daily sales) is a key metric for MSM. It declined -2.7%, which was ahead of guidance of -5.5% to -4.5%. The upside was fueled by growth in the Public Sector. Also, it's worth noting that MSM had a strong November with a return to growth. While certainly a positive sign, MSM is not viewing November alone as an inflection point as the month benefited from some large orders and the timing of a late Thanksgiving.
- In terms of the macro environment, MSM noted that the IP (Industrial Production) readings across most of its top manufacturing end markets continue to contract. Automotive and heavy truck, primary metals, fabricated metals and machinery and equipment continue to be soft. Aerospace, while a net positive for MSM in Q1, experienced a step-down related to strikes that have since been resolved.
- As such, ADS was -8% in December, although it was heavily weighed down by the mid-week timing of the holidays in 2024. MSM guided to Q2 (Feb) ADS being down -5% to -3%. Adjusted Operating margin declined to 8.0% from 10.9% a year ago, although this was ahead of 7.0-7.5% prior guidance. As expected, margins were impacted by higher priced inventories working through the P&L and a headwind from acquisitions. Q2 margins are expected at 6.5-7.5%.
- MSM did provide some hope for optimism. It said that future prospects for North American manufacturing are promising, driven by an increased focus on reshoring and incremental manufacturing investment into the US. Also, MSM feels it's well positioned to help customers navigate any pressures that arise from tariff policy. Just 10% of MSM's COGS are sourced from China, and it has low-single digit exposure in Mexico and Canada.
Overall, this was a good quarter for MSM, especially its public sector vertical. It does sound like MSM benefitted from a later Thanksgiving, but the upside was quite significant. Despite the good results, MSM was cautious about near term manufacturing activity although it should benefit from long term macro drivers, like reshoring, tariffs etc.
Helen of Troy showing some blemishes as weakness in Beauty and Wellness hits sales again (HELE)
Consumer products company Helen of Troy (HELE) had some blemishes in its 3Q25 earnings report, causing its stock to sink sharply lower, continuing a steep downward slide that has seen shares tumble by 25% since the beginning of December. Although HELE surpassed EPS expectations for the second quarter in a row -- following a huge miss in 1Q25 -- revenue fell just short of expectations and the company slightly adjusted its FY25 sales outlook lower. Similar to recent past quarters, soft consumer spending trends due to lingering inflation and a more promotional retail environment pressured sales, especially in the Beauty & Wellness segment.
- After declining by about 8% last quarter, sales in Beauty & Wellness fell by over 9% yr/yr in Q3 to $284.6 mln. The segment, which owns brands such as Vicks, Revlon, Braun, and Hot Tools, was negatively impacted by a weak winter and illness season, as well as soft consumer demand for hair appliances. HELE characterized the illness season as the weakest in the U.S. in the past eight years (not including the COVID years of 2020 and 2021), hurting sales of its Vicks products.
- HELE is hopeful that its recent $240 mln acquisition of Olive & June, a nail care brand, will provide a much-needed boost to its struggling Beauty & Wellness segment. For FY25, the company expects Olive & June to contribute about $17-$18 mln in high-margin sales that add to adjusted EPS.
- The news is more upbeat in the Home & Outdoors segment, where revenue increased by 4.3% to $246.1 mln, bolstered by ongoing strength in Hydro Flask insulated beverageware products. An expanded assortment of Hydro Flask products at Costo (COST) is helping the cause, while the segment also continues to experience strong international sales.
- An encouraging sign is that adjusted operating margin has stabilized and improved, expanding by 30 bps yr/yr to 16.6%, following a 270 bps drop last quarter to 15.0%. This improvement is mainly a function of HELE's "Project Pegasus" restructuring plan that it initiated in October 2022. The restructuring initiative, which aims to expand operating margins by optimizing the brand portfolio, streamlining the company, and accelerating cost of goods savings projects, is on track to deliver savings of $26-$30 mln by the end of FY25.
The main takeaway is that business conditions remain mixed-at-best for HELE as the slowdown in discretionary spending continues to provide a stiff headwind in the Beauty & Wellness segment. There are some bright spots, most notably including the Hydro Flask brand, but the stock will likely remain grounded until the Beauty & Wellness segment shows signs of a meaningful turnaround.
Albertsons rings up decent Q3 results in its first quarter since ending its merger with Kroger (ACI)
In its first quarterly report since terminating its merger agreement with Kroger (KR), grocery chain operator Albertsons (ACI) rang up decent bottom-line upside and raised its FY25 (Feb) adjusted EPS outlook moderately, reflecting the benefits of ongoing productivity enhancements. Meanwhile, identical sales growth of +2.0% met estimates in Q3 (Nov). However, ACI tempered its FY25 comp expectations, lowering the high end of its previous +1.8-2.2% outlook to +1.8-2.0%. Management noted that the reduced guidance underpinned a slowing food and beverage sector during the holiday season, a critical time of the year that can be challenging to recover in later months.
- With the merger between ACI and KR off the table, ACI outlined its strategy to compete in an intensely competitive industry, where mass merchants like Walmart (WMT) and Costco (COST) are gobbling up market share within the grocery category as consumers' budgets remain stretched due to the cumulative effects of inflation. In December, ACI mentioned accelerating its Customer for Life strategy, aiming toward at least +2% identical sales growth over time with adjusted EBITDA growth outpacing identical sales.
- At the time, ACI also authorized a $2.0 bln repurchase program and hiked its dividend by 25%.
- Central to its Customer for Life strategy is ACI's digital platforms, such as e-commerce, where the company's investments have driven sales penetration to over 7% of grocery revenue, helped by new capabilities within its mobile app and improvements in drive-up-and-go and home delivery. Another platform is ACI's loyalty program, where membership ticked 15% higher yr/yr in Q3 to 44.3 mln. Lastly, pharmacy and health platforms have driven sales penetration to over 11% of total annual revs, assisted by core script growth, such as GLP-1s and immunization.
- ACI's focus on these pillars paid off in Q3, posting a 23% and 13% improvement in digital and pharmacy sales, respectively, yr/yr, helping push total revenue 1.2% higher to $18.77 bln. However, there was a downside to these encouraging growth rates. Gross margins slipped by 27 bps yr/yr to 27.9% as pharmacy and grocery pick-up and delivery services carry lower margins.
- Still, productivity improvements largely offset the higher costs of mounting digital sales growth. ACI has been modernizing its operations, from migration to the cloud to launching pricing and promotional tools. Increasing self-checkout kiosks and updating supply chain systems have also underpinned productivity gains. As a result, ACI was confident in lifting its profitability outlook for the year despite trimming its identical sales growth forecast.
ACI is traversing the national grocery landscape alone after cutting ties with KR during a challenging economic period. Consumer spending could keep identical sales growth trends from improving quickly and produce volatility from quarter to quarter. While we like ACI's Customer for Life strategy, eyeing similar digital offerings as its rivals WMT and KR, it may be better to employ a wait-and-see approach.
Stryker strikes a deal to acquire Inari Medical, bolstering its neurotechnology business (SYK)
Medical device company Stryker (SYK) has struck a deal to acquire Inari Medical (NARI) for $80/share in an all-cash transaction valued at $4.9 bln, sending shares of NARI skyrocketing higher, while SYK drifts lower on the M&A news. Near the end of yesterday's session, speculation began swirling that a deal could be imminent after Reuters reported that SYK was closing in on an acquisition of NARI, which launched the stock higher. Excluding yesterday's gains, the $80/share purchase price represents a hefty premium of about 61% from last Friday's unaffected price.
Although SYK isn't issuing any new equity or debt to finance the transaction, the lofty valuation that it's paying for NARI may not be sitting too well with shareholders, especially since NARI has posted four consecutive quarterly losses. Based on NARI's FY24 revenue guidance of $601.5-$604.5 mln, SYK is paying roughly 8.1x expected FY24 sales. For a point of comparison, NARI competitor Penumbra (PEN) was trading with a trailing P/S of about 7x prior to today's M&A fueled gains.
Beyond the high price tag, though, the addition of NARI looks like a good fit for SYK.
- NARI, a fellow medical device company, manufactures products that treat deep vein thrombosis (DVT) and pulmonary embolisms (PE). The company's product portfolio complements SYK's neurotechnology business well, which focuses more on stroke treatment with products such as implants, stents, sealants. According to SYK, venous thromboembolism impacts up to 900,000 people in the U.S. alone each year, so its total addressable market will expand considerably with the addition of NARI.
- High costs have weighed on NARI's profitability -- operating expenses jumped by 34% in Q3 -- but the company's growth has been solid. In each of the past four quarters, revenue growth has been in the low-20% range and the company's FY24 guidance implies that trend will continue with growth of 21.5% projected for Q4. Furthermore, SYK should be able to attain some cost synergies as it integrates the much smaller NARI into its operations.
- The acquisition of NARI provides SYK with another growth catalyst to go alongside its recent platform launches. Specifically, the company is expected to launch its Pangea Plating system in the Orthopedics segment later this year, while the LIFEPAK 35 defibrillator and monitor is seeing strong interest with sales beginning to ramp.
Overall, we believe that NARI is a good strategic fit for SYK. While we would have liked to have seen more color regarding the financial implications of the deal in today's press release, SYK did state that it will provide the expected impacts to 2025 financial results during the Q4 earnings call on January 28.
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