Market Snapshot
| Dow | 44714.58 | -136.83 | (-0.31%) | | Nasdaq | 19714.23 | -101.26 | (-0.51%) | | SP 500 | 6039.31 | -28.39 | (-0.47%) | | 10-yr Note | -1/32 | 4.56 |
|
| | NYSE | Adv 989 | Dec 1709 | Vol 916 mln | | Nasdaq | Adv 1816 | Dec 2495 | Vol 6.5 bln |
Industry Watch
| Strong: Consumer Staples, Communication Services, Utilities, Financials, Energy, Industrials |
| | Weak: Information Technology, Real Estate, Health Care, Consumer Discretionary |
Moving the Market
-- Losses in some mega cap names weighing down S&P 500 and Nasdaq Composite
-- Reacting to FOMC decision and Fed Chair Powell press conference
-- Mixed reactions to earnings news
|
Closing Summary
29-Jan-25 16:30 ET
Dow -136.83 at 44714.58, Nasdaq -101.26 at 19714.23, S&P -28.39 at 6039.31
[BRIEFING.COM] The stock market had a somewhat mixed showing today. There was not a lot of conviction on either side of the tape in the early going as participants waited on the FOMC policy decision at 2:00 ET, followed by Fed Chair Powell's press conference at 2:30 ET.
The FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 4.25-4.50%, which was widely expected by the market. The language of the directive changed to exclude the line that "Inflation has made progress toward the Committee's 2 percent objective..." Instead, the January directive said that "Inflation remains somewhat elevated."
This wasn't too surprising and the market already expected the Fed to remain cautious as the economy and labor market continue to evolve. Fed Chair Powell's remarks at the press conference echoed this. He said "The broad sense of the Committee is that we don't need to be in a hurry to adjust the policy stance."
There was some volatility in stocks and bonds in immediate response to these developments, but markets ultimately settled little changed from levels seen ahead of the 2:00 ET policy announcement. This was an indication that participants didn't see anything truly surprising in today's decision or in the Fed Chair's comments.
The S&P 500 closed 0.5% lower, the Nasdaq Composite declined 0.5%, and the Dow Jones Industrial Average logged a 0.3% decline. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, settled two basis points higher at 4.23% and the 10-yr yield was unchanged at 4.56%.
- Dow Jones Industrial Average: +5.1.% YTD
- S&P Midcap 400: +3.5% YTD
- S&P 500: +2.7% YTD
- Russell 2000: +2.4% YTD
- Nasdaq Composite: +1.7% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -2.0%; Prior 0.1%
- December Adv. Intl. Trade in Goods -$122.1 bln; Prior was revised to -$103.5 bln from -$102.9 bln
- December Adv. Retail Inventories -0.3%; Prior was revised to 0.0% from 0.3%
- December Adv. Wholesale Inventories -0.5%; Prior was revised to -0.1% from -0.2%
Looking ahead to Thursday, market participants receive the following economic data:
- 8:30 ET: Advance Q4 GDP (Briefing.com consensus 2.3%; prior 3.1%), advance Q4 GDP Deflator (Briefing.com consensus 2.4%; prior 1.9%), Weekly Initial Claims (Briefing.com consensus 221,000; prior 223,000), and Continuing Claims (prior 1.899 mln)
- 10:00 ET: December Pending Home Sales (Briefing.com consensus 0.8%; prior 2.2%)
- 10:30 ET: Weekly natural gas inventories (prior -223 bcf)
Treasuries settle little changed
29-Jan-25 15:35 ET
Dow -17.63 at 44833.78, Nasdaq -51.85 at 19763.64, S&P -12.63 at 6055.07
[BRIEFING.COM] The major indices continued to move as after Fed Chair Powell's press conference concluded.
Treasuries settled little changed from yesterday in response to the Fed's latest move. The 10-yr yield was unchanged at 4.56% and the 2-yr yield rose two basis points to 4.23%.
Looking ahead to Thursday, market participants receive the following economic data:
- 8:30 ET: Advance Q4 GDP (Briefing.com consensus 2.3%; prior 3.1%), advance Q4 GDP Deflator (Briefing.com consensus 2.4%; prior 1.9%), Weekly Initial Claims (Briefing.com consensus 221,000; prior 223,000), and Continuing Claims (prior 1.899 mln)
- 10:00 ET: December Pending Home Sales (Briefing.com consensus 0.8%; prior 2.2%)
- 10:30 ET: Weekly natural gas inventories (prior -223 bcf)
Market moves up as press conference continues
29-Jan-25 15:00 ET
Dow -68.46 at 44782.95, Nasdaq -110.16 at 19705.33, S&P -26.01 at 6041.69
[BRIEFING.COM] The stock market recover from its initial drop in response to the FOMC decision. Major indices trade little changed from levels they were at before 2:00 ET.
The improvement occurred as Fed Chair Powell gives his press conference. Some key remarks so far include "Now, policy is meaningfully less restrictive than it with us before we began to cut, 100 basis points less restrictive. For that reason we will be focusing on seeing real progress on inflation, or some weakness in the labor market before we consider make adjustments."
In regards to the new administration, Mr. Powell said "I think the Committee is very much in the mode of waiting to see what policies are enacted. We don't know what will happen with tariffs, with immigration, with fiscal policy, and with regulatory policy.".
Stocks drop on FOMC decision
29-Jan-25 14:30 ET
Dow -250.56 at 44600.85, Nasdaq -226.31 at 19589.18, S&P -51.85 at 6015.85
[BRIEFING.COM] The stock market dropped after the Federal Open Market Committee (FOMC) voted unanimously to leave the target range for the fed funds rate unchanged at 4.25-4.50%. That was in-line with the decision widely expected by the fed funds futures market.
The S&P 500 shows a 0.9% decline and the Nasdaq Composite trades 1.2% lower.
It was noted in the directive that "Inflation remains somewhat elevated." The last directive in December said the same. What was missing this time was the added statement in the December directive that, "Inflation has made progress toward the Committee's 2 percent objective..."
Also noted in the January directive was that, "...labor market conditions remain solid." In December, the directive observed that, "Since earlier in the year, labor market conditions have generally eased." The directive observed today that "The unemployment rate has stabilized at a low level in recent months," versus the December directive that said, "... the unemployment rate has moved up but remains low."
In aggregate, the January directive was worded properly to fit the decision to leave the target rate for the fed funds rate unchanged.
Market holds steady ahead of FOMC decision
29-Jan-25 13:55 ET
Dow -57.14 at 44794.27, Nasdaq -157.89 at 19657.60, S&P -28.80 at 6038.90
[BRIEFING.COM] The major indices dropped as NVIDIA (NVDA 121.23, -7.74, -6.0%) shares declined. The market-cap weighted S&P 500 trades 0.5% lower.
There's still not a lot of conviction ahead of the imminent FOMC decision.
The bond market hasn't moved much either. The 10-yr yield is at 4.55% and the 2-yr yield is at 4.23%.
Brinker surges on big earnings beat; value offering and marketing is fueling turnaround (EAT)
Brinker Intl (EAT +16%) is trading sharply higher to a new all-time high after reporting huge EPS upside with its Q2 (Dec) earnings report this morning. This restaurant operator (Chili's, Maggiano's) reported a huge 183% yr/yr jump in adjusted EPS to $2.80, which blew away analyst expectations. Revenue rose a healthy 26.5% yr/yr to $1.36 bln, which also was much better than expected.
- The metric that really jumped out at us was same restaurant comps coming in at a whopping +27.4% (Chili's +31.4%; Maggiano's +1.8%). The comp increase at Chili's was primarily driven both by new guests trying Chili's and return guests coming more frequently despite a more competitive promotional environment. Chili's sales growth was driven by a 19.9% increase in traffic generated by investments in value-focused advertising.
- Chili's delivered another positive quarter in its turnaround and significantly outperformed the industry with its +31.4% comps. EAT says that Chili's turnaround has taken hold and it's sustainable. Growth continues to be well balanced, driven by the introduction of a new generation to the Chili's brand and by existing guests coming more often. Brinker says its marketing department is doing a great job of focusing on value, bringing guests in and putting Chili's back in culture again.
- EAT is encouraged with its ability to accelerate Chili's sales while also continuing to trim the menu. Fiscal YTD, Chili's has removed 13 menu items, full pantry SKUs and several prep sets. From a food standpoint, Chili's has moved to a higher quality chicken breast on every entree as well as guacamole made fresh in-house every day. Chili's also upgraded its recipes for chicken wings and bacon to make them crispier. Also, the installation of its new kitchen display systems is now complete.
- Chili's saw traffic and guest counts accelerate behind its better than fast food TV campaign and social media excitement around the Triple Dipper. Chili's also teased "big food innovation news" coming in Q4 (Jun) to bring excitement to the 3-for-Me platform. Chili's will disclose that on the MarQ call. Comps do get tougher in Q4 when EAT laps the Big Smasher roll out.
Brinker has been bucking the restaurant trend with back-to-back huge beats in Q1 and now in Q2. While other chains have been struggling, its Chili's brand has been impressive in recent quarters. The stock has really taken off since early October, up 135% since then. EAT has really been turning itself around. Paring down the menu makes it simpler and makes employees more efficient. Also, we really think EAT has curated its value offering and has gotten it down to a science with its 3-for-Me offering. Consumers want value right now and Chili's is a great deal. Briefing.com has been profiling Brinker for some time and we have wondered why the stock had been a laggard. However, it has been making up for lost time.
F5 Networks gets a high five from its shareholders after delivering beat-and-raise report (FFIV)
F5 Networks (FFIV) is getting a high five from its shareholders after the networking equipment and software company crushed 1Q25 estimates and provided a bullish outlook for FY25. With this impressive earnings report, the company has now strung together three consecutive quarters of top and bottom-line beats, cementing a turnaround that's built on its transition to a software-centric business model. Additionally, FFIV has emerged as a top AI play as its systems and software help to securely deliver data for AI model training and inference use cases.
A confluence of macro-related, company-specific, and AI-based factors are merging together to drive FFIV's stronger revenue growth, which achieved its second highest growth rate over the past three years at +10.5% in 1Q25.
- FFIV is benefitting from a more stable IT spending environment with healthy demand for new software that helps enterprises execute their transformation and modernization projects, including the adoption of hybrid multi-cloud architectures. This transition to a hybrid multi-cloud setup creates several challenges for enterprises, such as more complexity across the IT stack and more vulnerability to cyber-attacks. FFIV's products help simplify these environments, enabling its customers to consolidate data delivery and security apps onto a single platform.
- The impact from the above items is reflected in the 22% increase in software revenue to $209 mln. FFIV noted that it saw stronger-than-expected expansion activity within several large multi-year subscription renewals, in addition to solid growth in new software projects. Furthermore, in a testament to the effectiveness of its full range of software and hardware offerings, the company achieved a record number of competitive displacements in Q1.
- Shifting to the hardware business, revenue growth sharply accelerated to 18% from the 3% decline seen last quarter. FFIV has been waiting on a technology refresh to breathe new life into its struggling hardware business and that finally came to fruition this quarter. During the earnings call last night, FFIV stated that refresh activity is now widespread with some of the most significant demand originating from customers outside of its top 1,000 customers. One minor caveat is that FFIV acknowledged that a modest amount of hardware orders was pulled forward into Q1 as customers looked to get ahead of the price increase that was implemented on January 1, 2025.
- Looking ahead, the company is quite bullish about its prospects, as illustrated by its upwardly revised FY25 EPS and revenue guidance. The one blemish is that FFIV's Q2 EPS guidance fell short of expectations, but participants are looking past that to instead focus on the company's AI-based opportunities. Currently, FFIV's primary AI opportunities center on delivering and securing data for AI model training, but in time, the company also expects to capitalize on its WAAP (Web app and API protection) solutions for AI inferencing and AI factory load balancing.
The main takeaway is that FFIV's turnaround is reaching a higher gear, bolstered by its ongoing transition to a software-centric model and building momentum for AI-based use cases. Lastly, the company's strong results and outlook should bode well for competitors like Cisco (CSCO), Akamai Technology (AKAM), and Cloudflare (NET), each of which are slated to report earnings over the next several weeks.
Qorvo ekes out a small gain as investors digest financial impact from Android changes (QRVO)
Qorvo (QRVO) is trading higher following its Q3 (Dec) earnings results/guidance last night. The company reported strong upside in Q3 with solid guidance for Q4 (Mar). In fact, Qorvo reported a massive EPS beat, its largest upside in the past four quarters. Revenue fell 14.7% yr/yr to $916.3 mln, but analysts were looking for an even larger drop.
- The stock action has been a roller coaster since the report hit the wires last night. It initially popped higher, then went negative during the call, then it climbed back into positive territory. Qorvo is making some big changes in its Android segment and we think investors needed some time to digest all the ramifications, including what we believe are Qorvo's first comments that quantify the Android impact.
- Qorvo supplies mobile components with Apple (AAPL) being its largest customer at 46% of FY24 sales. However, its Android segment is experiencing changes in the market. The opportunity in mass tier Android 5G has declined at a faster rate than anticipated. This is not new info as Qorvo said this on the Q2 call as well. In response, Qorvo has changed its Android build plans to reflect higher consumer demand for entry tier 5G devices.
- During DecQ, Qorvo implemented changes across the organization in terms of how it supports Android 5G. This included a reduction in force in ACG and other company functions. Qorvo also narrowed its focus to the premium and flagship tiers to increase profitability and reduce variability. Its 5G product development spend is now focused solely on premium and flagship tiers.
- While Qorvo continues to serve mass tier Android programs previously awarded, the company expects these lower margin programs to go end of life in FY26 and FY27. For FY25, total Android 5G revenue in ACG is expected to be approximately $875 mln. However, Qorvo expects Android 5G to decline gradually by $150-200 mln annually in FY26 and again in FY27. The majority of the decline will be China-based, with the balance being mid-tier at Samsung. Beginning in FY27, Qorvo expects ACG to return to a long-term revenue target of mid-single digit growth.
- There was generally mixed news for its other markets. Qorvo believes it's past the bottom in its infrastructure segment and is now seeing stabilization in its broadband and cellular base station businesses. December revenue increased significantly yr/yr in both markets. However, in automotive, revenue in DecQ declined sequentially as end market softness continues. On the positive side, automotive OEMs and Tier 1's continue to show strong interest in Qorvo's ultra-wideband products. In consumer markets, DecQ revs declined sequentially, reflecting market headwinds.
Last quarter it was a shock when we first heard about the Android changes. And this call we got the detailed financial impact of phasing out the lower tier Android business. It took a minute for investors to digest and understand the impact, which is pretty substantial. However, we think the stock settling in with a slight move higher is a good sign. While there is risk here for future guide downs as Qorvo makes this transition, investors can now quantify the Android impact and focus on the new Qorvo.
Starbucks' turnaround plan begins to show early success as Q1 results improve sequentially (SBUX)
Starbucks (SBUX +6%) remains caffeinated after posting improving metrics in Q1 (Dec) as its Back to Starbucks turnaround plan shows early benefits. The global retail coffee chain returned to posting earnings upside in Q1 despite delivering another quarter of declining revenue growth yr/yr. Global comps also continued to contract. However, the declines were noticeably improved from last quarter before CEO Brian Niccol, who took over in August, outlined the company's Back to Starbucks strategy, highlighting the early success of SBUX's comprehensive initiative to win back customers and return to growth following multiple periods of lackluster results.
- In Q1, SBUX posted an EPS of $0.69, a few pennies above consensus on $9.4 bln in revenue, a 0.3% dip yr/yr. Global comps contracted by -4%, driven by a 6% drop in comparable transactions partially offset by a 3% improvement in average ticket. North American, U.S. and International comps fell by the same rate as global comps. However, all numbers represented an uptick from last quarter, when global comps slipped by -7%, with North America and International comps compressing by -7% and -6%, respectively.
- China, SBUX's second-largest market, was a clear gainer from last quarter, with comps down by just -6% compared to a -14% plunge in Q4 (Sep). Mr. Niccol noticed several near-term changes the company can implement to stabilize and strengthen its business in China.
- SBUX attributed the solid sequential improvements to its Back to Starbucks plan, which focuses on four pillars: reintroduce Starbucks, deliver an experience to win the morning, re-establish Starbucks as the community coffeehouse, and ensure a position at the company is unrivalled in retail. The first three components center on menu simplification, store renovation, and improved marketing campaigns, while the fourth pillar revolves around enhancing the workplace via precision scheduling, new routines, and simplified beverage builds.
- SBUX kicked off its turnaround plan by reducing the frequency of discount-driven offers, spurring a 40% decline in discounted transactions in Q1. The company also removed extra charges for non-dairy customizations. Meanwhile, SBUX conducted some late simplifications to its holiday lineup, targeting a roughly 30% reduction in beverages and food SKUs by the end of FY25 (Sep).
- A few other enhancements SBUX has rolled out or is still working on include launching a pilot program across hundreds of stores to improve staff efficiency and updating the Starbucks app.
- SBUX's guidance remains suspended as it continues embarking on its turnaround program. However, management provided some commentary on the near term, noting that EPS is expected to be lowest in Q2 due to seasonality, an ongoing organization restructuring as SBUX brings on former Taco Bell executives and elevated investments. Nevertheless, SBUX anticipates EPS to improve during the back half of the year.
Back to Starbucks has started to bear fruit, as evidenced by the improving numbers in Q1 and SBUX's U.S. category share among quick service restaurants recovering following two quarters of decline. There is still plenty brewing at SBUX that can create volatility over the near term. However, we like Brian Niccol's plan and SBUX's capacity to continue to deliver improving results this year.
Royal Caribbean sails to record highs as robust cruise demand propels Q4 EPS beat (RCL)
Following another impressive earnings report in which Royal Caribbean (RCL) cruised past Q4 EPS estimates and issued upside EPS guidance for Q1, shares are sailing to record highs and are now up by an astounding 110% on a yr/yr basis. Similar to the airline industry, cruise line operators like RCL are experiencing robust demand while benefitting from stronger pricing and moderate capacity growth. These bullish factors were on display when competitor Carnival (CCL) posted a Q4 earnings beat on December 20 that also featured record revenue and accelerating onboard spending levels.
In addition to following in the wake of CCL and delivering its own strong Q4 results, RCL also made a major announcement this morning, stating that it plans to enter the river cruise market in 2027 with an initial fleet of ten ships under its Celebrity River Cruises banner. This news has created some choppiness for shares of Viking Holdings (VIK) today, which has operated in the river cruise space with fairly limited competition since its founding in 1997. However, since VIK caters to a wealthier customer base with one of its key selling points being that its smaller ships offer a more intimate experience, the impact from RCL entering the space in two years should manageable.
- In the meantime, the more traditional cruise line industry is flourishing and is expected to be very healthy again in 2025. Thanks to the bullish industry-wide trends and RCL's effective strategy of maintaining modest capacity growth while keeping a lid on costs, gross margin yields jumped by 13.8% yr/yr. The primary catalyst for the improvement was higher pricing across all products and stronger onboard revenue as guest spending continues to exceed prior years.
- Adjusted EBITDA is another metric that's particularly useful for the cruise line industry since it strips out depreciation -- a substantial non-cash expense for cruise liners. In Q4, adjusted EBITDA came in at $1.1 bln, beating RCL's estimate of $1.05 bln, again reflecting stronger pricing and healthy close-in demand.
- Despite the macroeconomic headwinds, including stubbornly high interest rates, there is no sign of a slowdown in demand for RCL. In fact, the company experienced the best five booking weeks in its history since the end of last quarter. Additionally, RCL stated that "WAVE season" -- a period that typically runs from January through March -- is off to a record start with booked load factors matching prior years, but at higher rates. Accordingly, RCL issued a better-than-expected outlook for 1Q25, forecasting EPS of $2.43-$2.53 and a net yield increase of 4.75-5.25% in constant currency.
It's smooth sailing for RCL as the shift in consumer spending towards experiences carries on and as the company's strategy of restraining capacity while improving the on-board experience continues to pay dividends. Investors are also celebrating the company's decision to enter the river cruise industry, which has been a very lucrative market for VIK.
|
