Market Snapshot
| Dow | 44713.64 | +289.33 | (0.65%) | | Nasdaq | 19423.74 | -612.47 | (-3.06%) | | SP 500 | 5930.34 | -88.96 | (-1.48%) | | 10-yr Note | +8/32 | 4.53 |
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| | NYSE | Adv 1570 | Dec 1193 | Vol 1.1 bln | | Nasdaq | Adv 1817 | Dec 2576 | Vol 8.9 bln |
Industry Watch
| Strong: Health Care, Consumer Staples, Financials, Real Estate |
| | Weak: Information Technology, Utilities, Industrials, Communication Services, Energy |
Moving the Market
-- Selling interest in AI names and tech stocks after China's DeepSeek, which appears to be more cost effective than US alternatives, fuels risk-off vibe
-- Buying picks up in Treasuries and other sovereign debt due to flight to safety trading
-- Hesitation in front of big week of earnings news and FOMC rate decision
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Closing Summary
27-Jan-25 16:35 ET
Dow +289.33 at 44713.64, Nasdaq -612.47 at 19423.74, S&P -88.96 at 5930.34
[BRIEFING.COM] The stock market was mixed today. Big tech stocks, semiconductor-related names, and utility shares with AI exposure registered outsized declines while money rotated to other areas of the market.
NVIDIA (NVDA 118.42, -24.20, -17.0%) logged its largest single-day loss in market capitalization ever, driven by concerns over China’s DeepSeek AI model. This AI model attracted attention after it was perceived as much more cost-effective than U.S. alternatives, such as OpenAI’s ChatGPT.
The potential of DeepSeek to challenge the competitiveness of leading U.S. AI players raised questions about the future direction of the sector, particularly if DeepSeek can deliver on its promises. In response, the PHLX Semiconductor Index (SOX) has plummeted 9.2%, as investors reassess capital spending plans.
This weakness did not leak into the "rest" of the equity market as AI exuberance that led many names sharply higher was rung out of the market. More S&P 500 sectors closed higher (six) than lower (five).
The Dow Jones Industrial Average rose 0.7%, with 20 of its 30 components in the green. Meanwhile, the equal-weighted S&P 500 eked out a 0.1% gain, in contrast to the 1.5% drop in the market-cap weighted index. Market breadth was also more positive at the NYSE, where advancing issues lead decliners by a 3-to-2 ratio, though decliners outpace advancers at the Nasdaq by a 3-to-2 margin.
Still, the flight to safety impacted in the fixed-income market. The 10-year yield dropped ten basis points to 4.53% and the 2-year yield fell eight basis points to 4.19%. Also, today's $69 billion 2-yr note sale met tepid demand and a $70 billion 5-yr note offering garnered stronger interest than the 2-yr sale.
Investor caution was also palpable ahead of a busy earnings week, with around 40% of the S&P 500 by market capitalization set to report. Among them are two of the three $3 trillion companies—Apple (AAPL 229.86, +7.08, +3.2%) and Microsoft (MSFT 434.56, -9.50, -2.1%).
- Dow Jones Industrial Average: +5.1% YTD
- S&P Midcap 400: +3.8% YTD
- S&P 500: +2.2% YTD
- Russell 2000: +2.4% YTD
- Nasdaq Composite: +0.2% YTD
Reviewing today's economic data:
- December New Home Sales 698K (Briefing.com consensus 680K); Prior was revised to 674K from 664K
- The key takeaway from the report is that new home sales growth was ahead of expectations in December, but selling prices jumped from the bottom of the range that was seen in 2024 toward the top, which presents a headwind to selling activity going forward.
Looking ahead to Tuesday, market participants receive the following economic data:
- 8:30 ET: December Durable Orders (Briefing.com consensus 0.4%; prior -1.1%) and Durable Orders ex-transport (Briefing.com consensus 0.5%; prior -0.1%)
- 9:00 ET: November FHFA Housing Price Index (prior 0.4%) and November S&P Case-Shiller Home Price Index (Briefing.com consensus 4.2%; prior 4.2%)
- 10:00 ET: January Consumer Confidence (Briefing.com consensus 108.1; prior 104.7)
Treasuries settle higher
27-Jan-25 15:35 ET
Dow +226.56 at 44650.87, Nasdaq -667.98 at 19368.23, S&P -101.41 at 5917.89
[BRIEFING.COM] There hasn't been much up or down movement at the index level.
Treasuries rallied in response to the AI worries that plagued the stock market and created some flight to safety interest. The 10-yr yield dropped ten basis points to 4.53% and the 2-yr yield dropped eight basis points to 4.19%. Also, today's $69 billion 2-yr note sale met tepid demand and a $70 billion 5-yr note offering garnered stronger interest than the 2-yr sale.
Looking ahead to Tuesday, market participants receive the following economic data:
- 8:30 ET: December Durable Orders (Briefing.com consensus 0.4%; prior -1.1%) and Durable Orders ex-transport (Briefing.com consensus 0.5%; prior -0.1%)
- 9:00 ET: November FHFA Housing Price Index (prior 0.4%) and November S&P Case-Shiller Home Price Index (Briefing.com consensus 4.2%; prior 4.2%)
- 10:00 ET: January Consumer Confidence (Briefing.com consensus 108.1; prior 104.7)
Growth stocks lag while value stocks lead
27-Jan-25 15:00 ET
Dow +218.61 at 44642.92, Nasdaq -719.56 at 19316.65, S&P -109.20 at 5910.10
[BRIEFING.COM] The stock market hasn't moved much at the index level in recent trading.
The outperformance of value stocks versus growth stocks can be seen in the performance of the Russell 3000 Growth Index, which trades 3.3% lower, and the Russell 3000 Value Index, which trades 0.2% higher.
Elsewhere, the 10-yr yield sits at 4.53%.
S&P 500 falls as Vistra and Arista lead declines; AT&T gains
27-Jan-25 14:30 ET
Dow +286.46 at 44710.77, Nasdaq -617.43 at 19418.78, S&P -92.73 at 5926.57
[BRIEFING.COM] The S&P 500 (-1.52%) is in second place on Monday afternoon, down about 92 points.
Briefly, S&P 500 constituents Vistra Corp. (VST 136.93, -54.18, -28.35%), Arista Networks (ANET 99.86, -29.31, -22.69%), and GE Vernova (GEV 331.22, -89.27, -21.23%) pepper the bottom of the standings. VST coverage was resumed at BofA Securities with a Neutral, tgt $206, while both VST and GEV appear to be showing weakness in part due to the recent DeepSeek news; the weakness stems from recent actions by technology companies which have been leveraging nuclear and gas power plant types in order to deal with their uptick in workloads related to AI and quantum computing.
Meanwhile, AT&T (T 24.15, +1.43, +6.29%) is atop the average after a mixed Q4 report and downside FY25 EPS guidance.
Gold prices drop amid Nasdaq slump and Chinese AI boom
27-Jan-25 14:00 ET
Dow +133.13 at 44557.44, Nasdaq -675.26 at 19360.95, S&P -111.51 at 5907.79
[BRIEFING.COM] The Nasdaq Composite (-3.38%) is near session lows in recent trading, down now about 675 points.
Gold futures settled $40.50 lower (-1.5%) to $2,738.40/oz as investors liquidate amid Chinese AI boom and market sell-off.
Currently, the U.S. Dollar Index is down less than -0.1% to $107.40.
Beacon Roofing Supply up modestly after QXO (QXO) confirms $11 billion takeover offer (BECN)
Beacon Roofing Supply (BECN) trades relatively flat today after QXO (QXO) confirmed its $11 bln tender offer to acquire the building products distributor. QXO provides consulting and professional services, aiming to become a leader in the building products distribution industry through accretive acquisitions and organic growth. Part of QXO's strategy involves disrupting the nascent use of technology within the building products distribution industry, particularly AI and B2B e-commerce. As a result, QXO sees BECN as an excellent fit for its long-term vision.
- Rumors of the deal already broke out in November, pushing BECN to all-time highs. Then, earlier this month, QXO made public a deal to acquire all outstanding shares of BECN for $124.25 each in cash, triggering another wave of buying and pushing BECN to new record highs. At the time, BECN rejected the unsolicited proposal from QXO, which was to purchase. Despite the rejection, shareholders were relatively confident that the deal would go through.
- Today, QXO announced it would commence an all-cash tender offer to acquire BECN at the previously announced price, implying a roughly 37% premium above the stock's 90-day VWAP of $91.02. Still, given market participants' previous confidence in the deal closing, BECN is not seeing much additional appreciation today. QXO reiterated that it will pursue all options to complete the transaction, including nominating directors that would favor the deal at BECN's annual shareholder meeting.
- Meanwhile, QXO's shares are encountering some turbulence. Although, part of this could be due to today's broader market pullback. QXO has flatlined since plummeting last July following a $3.5 bln private placement composed of stock and warrants.
QXO has recently tried to acquire a building-products distributor, offering €28.00 to €28.40 per share for Rexel SA (RXEEY) in September, only for Rexel to reject the unsolicited proposal. Last week, BECN reportedly started turning to other suitors in an attempt to repel the takeover from QXO. Therefore, nothing is set in stone yet. BECN commented that it will evaluate QXO's tender offer. However, since the deal is no different than the one BECN rejected in November, noting that it significantly undervalued the company, QXO may have to up the ante.
AT&T rings up an earnings beat and issues better-than-feared outlook, pushing shares higher (T)
Not to be outdone by rival Verizon (VZ), which posted better-than-expected Q4 results last Friday, AT&T (T) delivered an earnings beat of its own this morning, bolstered by rising momentum for 5G mobile services and strength in its fiber business. While the company's FY25 EPS guidance of $1.97-$2.07 is seemingly below expectations, that forecast excludes contributions from its 70% stake in DirecTV. AT&T's sale of DirecTV to TPG is expected to close in mid-2025 and it's unclear whether the current consensus estimate for FY25 EPS fully takes that transaction into consideration.
- Similar to VZ, AT&T easily surpassed wireless subscriber expectations, reporting net postpaid phone additions of 482,000. The launch of new 5G smartphones, including Apple's (AAPL) iPhone 16 last September, and AT&T's strategy of bundling its fiber offerings with its wireless services helped drive the subscriber gains. Encouragingly, postpaid phone ARPU still edged higher by 0.9% yr/yr to $56.72, driven by momentum for more profitable 5G accounts.
- Another key source of strength was the fiber business. In Q4, AT&T had 307,000 fiber net adds, which also beat expectations by a wide margin and marked an acceleration from last quarter's gain of 226,000 subscribers. Despite yr/yr declines in legacy voice and data services, total consumer wireline revenue increased by 3.4% to $3.46 bln, fueled by fiber revenue growth of nearly 18% to $307 mln. Better yet, AT&T is anticipating this strength to continue in 2025, forecasting consumer fiber broadband revenue growth in the mid-teens, bolstered by the rising need for faster and more reliable connectivity.
- The main soft spot in Q4 was the business wirelines business. Sluggish demand for legacy voice and data services provided a stiff headwind here as revenue fell by 10% to $4.55 bln. Due to the top-line weakness, adjusted EBITDA margin contracted by 410 bps yr/yr to 26.3%.
- Although the company's FY25 guidance isn't necessarily awe-inspiring, with consolidated service revenue growth pegged in the low-single-digit range and adjusted EBITDA growth of 3% or better, it reflects a steady business that's capable of generating strong cash flow. On that note, AT&T is forecasting free cash flow of $16.0 bln (excluding DirecTV) for FY25, which should support a healthy dividend that's currently yielding 4.9% on an annualized basis. For some context, the company generated free cash flow of $17.6 bln in FY24 and paid out $8.2 bln in dividends.
Overall, AT&T's Q4 results and outlook brought some relief that fierce competitive pressures and a lackluster consumer spending environment are taking a major toll on its business. Business is far from booming, as evidenced by the tepid Q4 top-line growth of 1.1%, which missed expectations, but AT&T's performance and guidance was better-than-feared.
NVIDIA and other AI-related stocks suffering heavy losses today on DeepSeek R1 performance (NVDA)
Artificial intelligence stocks are taking on water today following the release of a groundbreaking AI model from a Chinese startup, DeepSeek. Semiconductors are among some of today's biggest losers, with leaders in the sector, including NVIDIA (NVDA -14%), Broadcom (AVGO -15%), and Taiwan Semi (TSM -13%), down by a double-digit percentage. The news has rocked big tech as well, placing selling pressure on Microsoft (MSFT -3%), Amazon (AMZN -1%), and Alphabet (GOOG -2%), all of which are deeply invested in AI, continuing to spend on the technology to pounce on unwavering demand. Other industries with significant ties to AI are also selling off, including nuclear stocks like Constellation Energy (CEG -19%), Nuscale Power (SMR -24%), and Vistra (VST -26%), which have seen substantial investments from tech firms due to the power demands of AI workloads.
- What is DeepSeek? The China-based AI platform is similar to the AI platforms offered by OpenAI (MSFT), such as ChatGPT, allowing it to generate content, debug code, and execute multi-step workflows. The latest release of DeepSeek, dubbed DeepSeek-R1, touts performance on par with OpenAI-o1, the latest series of reasoning models from OpenAI. This in itself is not so much the part that is causing some panic today. Instead, it is the cost at which DeepSeek achieved this milestone that has Wall Street concerned.
- According to DeepSeek's research paper, it cost the company just over $5.5 mln to train its latest model, far less than the estimated $80 mln and $190 mln OpenAI and Google spent to train some of their more recent AI models, respectively. This is a serious issue for big tech, which is spending billions on its AI infrastructure. If DeepSeek can do the same or better for considerably less money, it can charge far less than U.S.-based competitors. Furthermore, DeepSeek-R1 is open-source, making it even cheaper to train and leverage, threatening big tech's leadership in AI.
- While DeepSeek has purchased NVDA chips, noting that the H800 was used for DeepSeek-V3, released in December, these chips were sold at a fraction of the cost of NVDA's flagship H100 chips. By demonstrating that it can extract similar gains using throttled chips, which were re-tooled to comply with U.S. trade restrictions, DeepSeek is injecting further worry that big tech could reduce their spending on NVDA hardware, hurting the future financials of the company and its supplier, TSM.
DeepSeek's R1 performance metrics are sparking panic across tech companies today, particularly those with heavy exposure to AI. However, there is the possibility that DeepSeek's numbers may not be accurate. Perhaps the company spent significantly more than it claimed. Still, in a market where tech companies like NVDA have stretched valuations, trading at a rich multiple of around 32x as of Friday's close, investors are taking profits now instead of waiting until the dust settles.
SoFi pulls back following Q4 results as guidance makes investors a bit nervous (SOFI)
SoFi (SOFI -9%) is pulling back today following its Q4 report this morning. This digital-first provider of financial services beat slightly on EPS. Revenue rose a healthy 19.3% yr/yr to $734.1 mln, which was much better than expected. Our sense is that investors wanted to see better guidance for 2025.
- The company offers a full suite of financial products and services to its 10.13 mln SoFi members. SoFi is best known for its Lending segment (SoFi Loans), but it has been making diversification a priority. It now does a lot more than personal loan lending, which has seen some softness with higher rates in recent years. Its Financial Services and Tech Platform segments have been driving growth in recent quarters, this includes checking/savings accounts, credit cards, SoFi Invest etc.
- There were definitely some good metrics. Member and product adds in Q4 reached 785,000 and 1.1 mln, respectively, setting new quarterly records. SoFi Money reached record highs in Accounts, Total Deposits, and Direct Deposit members. Also, SoFi launched its Zelle offering and improved self-service wire transfers. Financial Services products increased by 34% yr/yr to 12.7 mln, primarily driven by continued demand for SoFi Money, Relay and Invest products.
- Lending segment sales increased 18% yr/yr to $417.8 mln, driven by net interest income, which rose 31% yr/yr and now makes up 82% of segment adjusted net revenue. This was driven by a 23% increase in average interest-earning assets. SoFi saw record origination volume in Q4 at $7.2 bln, up 66% yr/yr due to continued strong demand for personal loan, student loan and home loan originations.
- Financial Services segment revenue jumped 84% yr/yr to $256.5 mln, primarily driven by growth in consumer deposits. And finally, Technology Platform segment revenue increased 6% yr/yr to $102.8 mln. Tech revenue growth was driven by continued monetization of existing clients, along with new deals signed in new client segments.
- Its Tech segment's recent client wins have been more diverse, including major consumer and commercial brands, as well as large enterprises in Latin America. Also, Galileo was recently selected by the US Dept of the Treasury as the processing partner for Direct Express, a prepaid debit card program that 3.4 mln people use to access their federal benefits.
- As you can see, SoFi's non-Lending segments are growing nicely and comprised a record 49% of total adjusted net revenue during Q4, reflecting the continued diversification of its business beyond lending.
Overall, it seems investors are nervous about SoFi's 2025 guidance. The company said that, after a year of bolstering its capital base, it now wants to tilt the incremental revenue growth toward investment. Investors tend to read that as higher costs and the impact that it will have on margins. The stock has been a big mover since early October and there has been a lot of positive sentiment. However, it seems the 2025 outlook is tempering those expectations a bit.
American Express maxed out after reaching record highs, casuing post-earnings report pullback (AXP)
After soaring by about 130% since late October, to trade at record highs yesterday, credit card company American Express (AXP) seems to have maxed out -- at least temporarily -- after reporting Q4 results before the open today. Although the company edged past EPS expectations, the degree of upside was far more modest compared to recent quarters, and its in-line FY25 EPS and revenue guidance failed to impress, resulting in a profit-taking pullback.
However, AXP's results were solid overall as the company continues to see resilient spending and benefit from its higher income customer base. Additionally, after exiting 2024 with increased momentum, AXP announced that it's raising its quarterly dividend by 17% to $0.82/share from the prior amount of $0.70/share.
- Buoyed by a strong holiday shopping season, spending grew by 8%, representing an uptick from the 6% range AXP has experienced over the past few quarters. Growth was broad based as both the Travel & Experiences (T&E) and Goods and Services (GNS) categories contributed to the jump in spending. Staying true to form, the millennial and Gen Z cohorts outpaced other age groups with spending up 16% yr/yr.
- A core tenet of AXP's growth strategy is to focus on this younger and more affluent demographic. This plan continues to pay dividends as the number of millennial and Gen Z customers with premium products is growing at the fastest rate across the industry.
- On the topic of premium products, AXP refreshed over 40 products globally in 2024, including the U.S. Consumer Gold Card, which has been quite successful with younger customers. In 2025, the company intends to keep its foot on gas, planning to refresh between 35 and 50 products with other enhancements to its membership model on the way.
- Another benefit of having a more affluent customer base is that its customers are more resilient to macroeconomic headwinds, resulting in lower delinquencies. AXP's net write-off rate was just 1.9% in Q4, down 10 bps from the year-earlier period, and consolidated provisions for credit losses decreased by $100 mln yr/yr to $1.3 bln.
- As noted above, the main issue that's holding the stock down is that AXP's FY25 EPS and revenue guidance of $15.00-$15.50 and $71.2-$72.5 bln was only in-line with expectations. Still, the company's outlook equates to solid EPS growth of 12-16% yr/yr and its aim of attaining mid-teens earnings growth in the long run remains in place.
There was plenty to like in regard to AXP's Q4 results, most notably including the 16% yr/yr EPS growth and the upswing in spending growth across its network. Thanks to its affluent customer base and consistent execution, AXP remains a best-in-class name in the credit card industry, despite today's pull-back in the stock, which we chalk up to some profit-taking after the stock's meteoric run to record highs.
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