Market Snapshot
| Dow | 41583.90 | -715.80 | (-1.69%) | | Nasdaq | 17322.99 | -481.04 | (-2.70%) | | SP 500 | 5580.94 | -112.37 | (-1.97%) | | 10-yr Note | +8/32 | 4.265 |
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| | NYSE | Adv 572 | Dec 2120 | Vol 1.0 bln | | Nasdaq | Adv 843 | Dec 3500 | Vol 7.1 bln |
Industry Watch
| Strong: Utilities, Health Care |
| | Weak: Consumer Discretionary, Communication Services, Industrials, Financials, Technology |
Moving the Market
-- Tariffs remain top of mind for investors
-- Digesting the February Personal Income and Spending Report
-- Losses in mega cap names limit performance
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Closing Summary
28-Mar-25 16:30 ET
Dow -715.80 at 41583.90, Nasdaq -481.04 at 17322.99, S&P -112.37 at 5580.94
[BRIEFING.COM] The major US equity indices experienced significant declines today, driven by escalating inflation concerns and deteriorating consumer sentiment. The Dow Jones Industrial Average dropped 1.7%, the S&P 500 fell 2.0%, and the Nasdaq Composite registered a 2.7% loss.
The core Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation measure, rose 0.4% in February, equating to a 2.8% annual increase versus 2.7% in January. Also, the final University of Michigan's Consumer Sentiment survey dropped to 57.0 in March, reflecting worsening expectations for personal finances, business conditions, unemployment, and inflation.
Some negative corporate news also contributed to the selling interest in equities. lululemon Athletica's (LULU 293.06, -48.47, -14.2%) shares plunged 14% following a disappointing earnings outlook.
Ten of the 11 S&P 500 sectors closed lower led by communication services (-3.8%), consumer discretionary (-3.3%), and technology (-2.4%). The only sector to close higher was the defensive-leaning utilities sector (+0.8%).
Buying also increased in Treasuries in another manifestation of economic worries. The 2-yr yield sank nine basis points today to 3.91% and the 10-yr yield settled 11 basis points lower at 4.26%. This leaves the 2-yr yield four basis points lower this week and the 10-yr yield one basis points higher this week.
- Dow Jones Industrial Average: -2.3% YTD
- S&P 500: -5.1% YTD
- S&P Midcap 400: -6.6% YTD
- Russell 2000: -9.3% YTD
- Nasdaq Composite: -8.4% YTD
Reviewing today's economic data:
- February Personal Income 0.8% (Briefing.com consensus 0.4%); Prior was revised to 0.7% from 0.9%, February Personal Spending 0.4% (Briefing.com consensus 0.6%); Prior was revised to -0.3% from -0.2%, February PCE Prices 0.3% (Briefing.com consensus 0.3%); Prior 0.3%, February PCE Prices - Core 0.4% (Briefing.com consensus 0.4%); Prior 0.3%
- The key takeaway from the report is that it was good on the income side, just okay on the spending side (real PCE up just 0.1%), and bad on the inflation side with the uptick in the core-PCE Price Index. That mixed complexion, which is apt to stir some stagflation angst as well, will keep the Fed in a wait-and-watch mode, especially with near-term price adjustments likely as the tariffs take hold.
- March Univ. of Michigan Consumer Sentiment - Final 57.0 (Briefing.com consensus 57.9); Prior 57.9
- The key takeaway from the report is that the Expectations Index has dropped more than 30% since November 2024. The decline in March featured a clear consensus across all demographic and political affiliations, citing worsening expectations for personal finances, business conditions, unemployment, and inflation.
Looking ahead, Monday's economic data is limited to the March Chicago PMI (prior 45.5) at 9:45 ET.
Treasuries settle with gains
28-Mar-25 15:30 ET
Dow -732.65 at 41567.05, Nasdaq -487.77 at 17316.26, S&P -114.05 at 5579.26
[BRIEFING.COM] There hasn't been much up or down action in equity indices ahead of the close.
The 2-yr yield sank nine basis points today to 3.91% and the 10-yr yield settled 11 basis points lower at 4.26%. This leaves the 2-yr yield four basis points lower this week and the 10-yr yield one basis points higher this week.
Looking ahead, Monday's economic data is limited to the March Chicago PMI (prior 45.5) at 9:45 ET.
Downslide continues
28-Mar-25 15:05 ET
Dow -702.23 at 41597.47, Nasdaq -472.56 at 17331.47, S&P -110.41 at 5582.90
[BRIEFING.COM] The major equity indices are stuck in narrow trading ranges near session lows. The S&P 500 is on pace for a 1.5% decline this week, the Nasdaq Composite sits on a 2.5% decline since last Friday, and the Dow Jones Industrial Average is 0.9% lower than its close last week.
Mega cap stocks have impacted index losses since last Friday. The Vanguard Mega Cap Growth ETF (MGK) is 2.5% lower this week.
Elsewhere, the Invesco S&P 500 Equal Weight ETF (RSP) sits on a 1.0% decline on the week.
S&P 500 drops nearly 2% as ON, DASH, and DAL lag; WRB surges on strategic investment
28-Mar-25 14:25 ET
Dow -728.96 at 41570.74, Nasdaq -468.67 at 17335.36, S&P -113.16 at 5580.15
[BRIEFING.COM] The S&P 500 (-1.99%) is in second place on Friday afternoon, down about 113 points.
Briefly, S&P 500 constituents onsemi (ON 41.29, -2.47, -5.64%), DoorDash (DASH 183.03, -10.99, -5.66%), and Delta Air Lines (DAL 43.75, -2.40, -5.20%) pepper the bottom of the average. ON falls in sympathy to chip peer Wolfspeed's (WOLF 2.67, -2.71, -50.37%) crushing losses, DASH slips despite FBN Securities initiating the stock at Outperform.
Meanwhile, W.R. Berkley (WRB 71.23, +4.95, +7.47%) is decently higher this afternoon after the company confirmed a strategic investment and voting arrangement with Mitsui Sumitomo Insurance whereby MSI would acquire a 15% stake in WRB.
Gold surges 3.1% on the week as trade uncertainty boosts safe-haven demand
28-Mar-25 14:00 ET
Dow -712.05 at 41587.65, Nasdaq -477.09 at 17326.94, S&P -111.09 at 5582.22
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-2.68%) is solidly lower, down more than 475 points.
Gold futures settled $23.40 higher (+0.8%) at $3,114.30/oz, up about +3.1% on the week as uncertainty around President Trump's tariff and trade policies served to prop up demand for the safe-haven asset.
Meanwhile, the U.S. Dollar Index is now down about -0.2% to $104.07.
Dutch Bros is sluggish today as its reiterated FY25 comp forecast triggers disappointment (BROS)
Dutch Bros (BROS -6%) remains in need of a pick-me-up after its reiterated long-term growth strategy and Q1 update last night during its Investor Day presentation fell flat. Since spiking to all-time highs in February following Q4 results, shares of the coffee chain, predominately located on the West Coast, have tumbled by roughly 30%. Much of the decline can be attributed to the broader market weakness, which can have an outsized adverse impact on stocks trading at frothy multiples, such as BROS, which was carrying a forward earnings multiple of 135x following Q4 results.
- One item that stood out from Investor Day was BROS reaffirming its same-store sales growth target of +2.0-4.0% despite the figure increasing by +4.6% through March 24. Given how much the company exceeded its comp goal for the previous year, exceeding forecasts by over 100 bps, perhaps the market was looking for BROS to raise its annual forecast, particularly given how it is already tracking ahead of its projection for FY25.
- Another piece to today's selling pressure could be the general sentiment about the economy. BROS did not provide any updates on input prices. However, the coffee market has been volatile, with tariffs potentially increasing volatility further and upping input costs. BROS has taken some price to offset inflation at the beginning of the year.
- If it is forced to continue on this path, demand could begin to take a hit, especially since BROS specializes in more premium, highly customized beverages. Rival Starbucks (SBUX) has continued to see a shift into lower-priced beverages lately as consumers grapple with stubborn inflationary pressures.
Other than this, there were not many surprises with BROS's long-term financial targets, reiterating its annual revenue growth rate of around +20%, underpinned by annual new shop growth in the mid-teens. The company also anticipates annual adjusted EBITDA growth of over 20% above its annual sales growth rate target. Another item worth noting was BROS's decision to launch a line of Dutch Bros packaged coffee products to be sold in retail outlets. The announcement aligns with the company's plan to roll out an expanded food program, trying to reach more individuals to raise brand awareness.
Nevertheless, given its still-rich valuation, trading at around 92x forward earnings, considerably above SBUX, which commands a 30x forward earnings multiple, BROS likely needed to step up its comp outlook for the year following its solid start to Q1. Furthermore, the economy is currently generating apprehension among investors who are worried about a material downturn in consumer spending. While coffee tends to top consumers' list of daily priorities, like SBUX is witnessing, people may be finding ways to consume it less expensively. Similarly, at-home coffee consumption could be on the rise. Keurig Dr Pepper (KDP) noted last month that at-home coffee trends improved sequentially in Q4, with December marking the strongest month of the quarter. As such, CEO Christine Barone, who took over on January 1, 2024, could be staring at a roadblock to her comprehensive turnaround plan in the near future.
lululemon posts strong Q4 international growth; Soft U.S. sales and tariffs weigh on outlook (LULU)
The momentum from a strong holiday shopping season carried into January for lululemon athletica (LULU), enabling the activewear company to cruise past the upwardly revised EPS and revenue guidance it provided on January 13. However, when the calendar flipped to February, sales began to cool as customers reined in spending amid waning consumer confidence levels. Uncertainties around tariff policies are adding to an already difficult and complex environment for retailers, leading LULU to issue cautious guidance for Q1 and FY26 that fell short of expectations.
- The intensifying macro headwinds come as LULU is attempting to turn its U.S. business around after some merchandising missteps led to a disappointing 2024. LULU created a new reporting structure within its product team, enabling faster decision making within its merchandising teams, and refreshed product lines that were lacking new colors, prints, and patterns. Positive signs emerged last quarter when U.S. revenue was flat qtr/qtr, indicating a stabilization in demand, but the souring macro climate has prevented LULU from building off that recovery.
- In Q4, revenue increased by only 1% in the U.S. due to slower traffic. Adding to the disappointment, LULU said it's only anticipating modest U.S. revenue growth in 2025, even as it ramps up new products and brand activations. The company stated that it's seeing a strong response to new products, so its outlook would likely be even softer without the contributions from the launches. Looking ahead, LULU will build upon the newness and innovations this year with the introduction of BeCalm yoga wear, Glow Up technical franchise, and Mile Maker men's running franchise, among others.
- Staying true to recent form, the international business continued to shine in Q4 as comparable sales soared by 22% in constant currency. LULU has rapidly expanded its presence in China, where comps jumped by 27% in constant currency, indicating that brand awareness and popularity is still on the rise there. Unlike the Americas region, where LULU utilizes a more traditional marketing model, the strategy in China is more localized. The company looks to foster a strong relationship with a community through in-store experiences, local events, and wellness initiatives.
- Despite operating in a highly promotional retail environment, LULU has protected its brand, refraining from increasing markdown activity in order to drive sales. Accordingly, gross margin increased by 100 bps yr/yr to 60.4%, driven by lower markdowns, improved shrink, and lower product costs.
Strong holiday sales, robust international growth, and improved product margins allowed LULU to exceed Q4 expectations, but U.S. sales are showing signs of sluggishness again amid escalating macro headwinds, including tariffs. The company plans to combat these challenges by enhancing product innovation and newness, strengthening its market positioning, but it faces an uphill climb given the increasing consumer hesitancy.
Braze begins to fade earlier highs following uplifting Q4 results; growth is still slowing (BRZE)
Braze (BRZE +4%) is starting to cool down after kicking off the day ablaze, spiking to its best levels of the month following better-than-expected Q4 (Jan) earnings and sales and decent guidance. Braze is a customer engagement and marketing platform, that competes in the customer experience management software space, similar to Sprinklr (CXM), and with other customer relationship management platforms, like Salesforce (CRM) and HubSpot (HUBS).
Like its peers, Braze has been working through a tough macroeconomic environment, which has bogged down customer spending and IT budgets. Added uncertainty due to tariff policy only exacerbated the situation. However, amid all of these headwinds, Braze delivered an impressive quarterly performance. Investors are also cheering the $325 mln acquisition of OfferFit, an AI-powered organization that helps marketers test to ensure the best decision for each individual customer.
- Braze ended FY25 on a high note, delivering adjusted EPS of $0.12, well above its $0.05-0.06 forecast and marking its widest earnings beat since going public in late 2021. Braze was laser-focused on extracting additional efficiencies across its business, helping flip non-GAAP operating margins to positive 5.0% from negative 5.7% in the year-ago period.
- The impressive bottom-line results came revenue growth of 22.4% yr/yr to $160.4 mln. While growth is still decelerating, going from +33.1% in Q1, +26.4% in Q2, and +22.7% in Q3, the rate of decline has been slowing. In fact, the market anticipated growth dipping below the 20% mark given Braze's revenue forecast of $155-156 mln.
- Supporting the gains in Q4 was the previously highlighted legacy vendor replacement cycle. Braze is capitalizing on businesses desire to replace legacy marketing clouds, helping secure new business wins ranging from fintech to retail and energy across the U.S., EMEA, and APAC regions. Total customers increased by 12% yr/yr to 2,296, while large customers ($500K+ in annualized recurring revenue) jumped by 22% yr/yr to 247.
- Management reiterated its confidence in these trends remaining a long-term tailwind, creating further opportunities for Braze to capture market share and continue etching out an economic moat.
- Regarding the OfferFit acquisition, we like the deal for Braze given OfferFit's line of business. The AI company has numerous use cases, from helping increase cross-sell and upsell opportunities to increasing repeat purchase frequency. OfferFit is already used by many prominent logos, such as Wyndham and Brinks.
- Braze's FY26 guidance was decent. The company expects adjusted EPS of $0.31-0.35, highlighting its expectation of achieving positive quarterly non-GAAP operating income going forward. This is an uplifting development given the company's commitment to invest rather aggressively to carve out an economic moat despite unfavorable demand prospects. For revenue, Braze expects $686-691 mln, translating to +16% growth at the midpoint.
With Sprinklr already registering a surprise beat-and-raise in Q4 (Jan) earlier this month, Braze was in no position to miss headline estimates. With its back against the wall, the company performed well, underscoring its technological edge. However, FY26 revenue growth guidance illuminates a tricky economic backdrop which could keep a lid on further stock appreciation in the near term.
Oxford Ind heads lower on weak guidance; even high end retailer feeling the consumer pinch (OXM)
Oxford Industries (OXM -5%) is trading lower following disappointing Q4 (Jan) earnings results/guidance last night. This apparel company, which owns Tommy Bahama, Lilly Pulitzer, Johnny Was and some emerging brands, focuses on the laid-back vacation vibe. Let's start with some positives. After four consecutive EPS misses, OXM reported solid EPS upside for Q4. Revenue fell 3.4% yr/yr to $390.5 mln, but that was better than analyst expectations.
- OXM had a successful holiday season as its customer showed up to buy gifts for loved ones. OXM was particularly pleased in the weeks leading up to Christmas by the performance of some of its newer, and higher price point, products. Unfortunately, OXM's guidance for both Q1 (Apr) and the full year were well below analyst expectations.
- The company said challenging trends in January accelerated into February and are likely an indicator of what to expect in the first half of FY25. However, OXM does expect strong selling for big events such as Easter, Mother's Day, Father's Day, Memorial Day, and the 4th of July. It's the in-between times that are more of a concern as the consumer will likely be more hesitant to spend.
- OXM expects a total comp decline of between -4% and -2% in FY25, with growth in its Lilly Pulitzer and Emerging Brands, partially offset by decreases in Tommy Bahama and Johnny Was. By distribution channel, OXM expects relatively flat sales in both the brick-and-mortar and wholesale channels and it expects e-commerce sales to decrease in the low-single-digit range.
- Something that stood out to us on the call was OXM saying, despite difficult times, it plans to protect the integrity of its brands for the long term. With OXM's brands being priced on the higher end of the apparel spectrum, we read this as OXM deciding it will not lower prices to boost near term results. This could be a risky strategy given the state of the consumer, but it sounds like OXM is focusing on the long term.
Oxford has now posted back-to-back rough earnings/guidance results. While the holiday results were good, OXM's guidance was quite disappointing. We think investors were bracing for some tough guidance given OXM's status of being a higher price point apparel retailer. However, this guidance was surprisingly weak and is resetting investor expectations for this year.
Our first thought was whether OXM's dividend might be at risk given its troubles and given its lofty 4.6% yield. However, OXM just increased it on Monday, knowing full well what its guidance was going to be. So it looks safe for now, but we think it could be at risk. OXM has been in a downtrend for the past year, but we would be hesitant about buying down here given the risk for more downside guidance.
Jefferies' Q1 results hit by investment banking downturn, warns of ongoing macro challenges (JEF)
Investment banking and capital markets company Jefferies (JEF) is diving sharply lower after reporting downside Q1 results that reflected a steep deceleration across its business segments, while issuing a cautious outlook as macroeconomic uncertainties escalate. Although JEF didn't issue formal guidance, it warned that the capital markets have become "increasingly more challenging" due to the unpredictability that's arisen around U.S. policy and geopolitical events.
The cautious remarks are rippling across the financial sector with particular weakness seen in Goldman Sachs (GS) and Morgan Stanley (MS), each of which have substantial institutional exposure. MS is slated to report Q1 results on April 11, followed by GS issuing Q1 results on April 14.
- Following a 73% surge in revenue last quarter, the Investment Banking segment experienced a major downturn in Q1 with revenue dipping by 4% yr/yr to $700.7 mln. The weakness was mainly due to a substantial 39% yr/yr decline in equity underwriting to $128.5 mln, indicating subdued IPO activity, especially in technology and high-growth sectors. JEF stated that while it's high-quality backlog for investment banking transactions continues to build, the realization of it depends on confidence and visibility reemerging.
- Advisory was a bright spot for the Investment Banking segment with revenue increasing 17% to $397.8 mln. The growth was primarily driven by market share gains and a notable uptick in global M&A activity.
- Turning to Capital Markets, revenue fell by 4% to $698.3 mln with mixed performance across equities and fixed income. While equities net revenue was up 10% to $409 mln, fixed income net revenue decreased by 18% to $289 mln, resulting from lower trading volumes and less market volatility. More specifically, lower activity in government and corporate debt markets contributed to the decline in trading revenue.
- Another striking decline occurred in the Asset Management segment, which suffered a 30% plunge in revenue to $191.7 mln, following last quarter's 5% increase. JEF linked the reversal to challenging capital market conditions and geopolitical tensions, as noted above. These headwinds caused a reduction in assets under management (AUM), leading to reduced management fees. It's worth noting that this segment also had a tough yr/yr comparison as Asset Management generated revenue growth of 20% in 1Q24.
JEF's soft Q1 results highlights the challenges currently impacting the investment banking sector, influenced by geopolitical and policy-related uncertainties. The disappointing earnings report may also be a harbinger of things to come for the financial sector with Q1 earnings season looming around the corner.
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