Market Snapshot
| Dow | 37965.60 | -349.26 | (-0.91%) | | Nasdaq | 15603.27 | +15.48 | (0.10%) | | SP 500 | 5062.25 | -11.83 | (-0.23%) | | 10-yr Note | -34/32 | 4.16 |
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| | NYSE | Adv 529 | Dec 2019 | Vol 2.0 bln | | Nasdaq | Adv 1448 | Dec 2883 | Vol 12 bln |
Industry Watch
| Strong: Communication Services, Technology |
| | Weak: Real Estate, Health Care, Utilities, Materials, Consumer Staples, Financials, Discretionary |
Moving the Market
-- Broad selling continues amid tariff angst
-- Growing recession fears
-- Outsized decline in some mega caps
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Closing Summary
07-Apr-25 16:30 ET
Dow -349.26 at 37965.60, Nasdaq +15.48 at 15603.27, S&P -11.83 at 5062.25
[BRIEFING.COM] The stock market exhibited extreme turbulence on the first session of the week on above-average volume. The S&P 500 (-0.2%), which traded in bear market territory (i.e., 20% below its recent peak) near its worst level of the session, swung more than 400 points between its intraday high and low. The index was down 4.7% shortly after the open and surged 3.4% at its high.
The Nasdaq Composite, down more than 800 points at its low, closed 0.1% higher thanks to rebound action in mega caps and chipmakers.
The initial bounce off session lows coincided with an erroneous report that NEC Director Kevin Hassett said President Trump is considering a 90-day pause on the tariffs, except for China. The White House called the report fake news, and President Trump later indicated that the U.S. will impose an additional 50% tariff on imports from China, starting Wednesday, if China does not withdraw its 34% tariff on U.S. imports.
Selling increased in response, but major indices remained well above their worst levels of the session. One factor keeping equity indices elevated relative to session lows was the reversal in the Treasury market.
Market rates have been sinking on safe-haven interest of late, but the 10-yr yield jumped 17 basis points today to 4.16% and the 2-yr yield rose six basis points to 3.73%.
- Dow Jones Industrial Average: -10.8% YTD
- S&P 500: -13.9% YTD
- S&P Midcap 400: -16.1% YTD
- Russell 2000: -18.8% YTD
- Nasdaq Composite: -19.2% YTD
Today's economic data was limited to consumer credit, which decreased by $0.8 billion in February (Briefing.com consensus $15.1 billion) after increasing by a downwardly revised $8.9 billion (from $18.1 billion) in January.
- The key takeaway from the report is that February marked the third contraction in consumer credit in the last four months.
Consumer credit shows another contraction
07-Apr-25 15:30 ET
Dow -581.56 at 37733.30, Nasdaq -58.25 at 15529.54, S&P -40.58 at 5033.50
[BRIEFING.COM] The major equity indices moved further below their prior closing levels in recent action.
Consumer credit decreased by $0.8 billion in February (Briefing.com consensus $15.1 billion) after increasing by a downwardly revised $8.9 billion (from $18.1 billion) in January.
The key takeaway from the report is that February marked the third contraction in consumer credit in the last four months.
Separately, the 10-yr yield jumped 17 basis points today to 4.16% and the 2-yr yield rose six basis points to 3.73%.
Tech stocks and chipmakers outperform
07-Apr-25 15:05 ET
Dow -317.46 at 37997.40, Nasdaq -16.60 at 15571.19, S&P -19.77 at 5054.31
[BRIEFING.COM] The Nasdaq Composite dipped below its prior close and the S&P 500 trades 0.4% lower.
The heavily-weighted technology sector (+0.3%) moved into positive territory, joining the communication services sector (+1.4%), thanks to relative strength in its mega cap components and chipmaker components.
Rate cut expectations have remained steady despite today's volatility in the stock and bond markets. The fed funds futures market sees a 97.1% probability of at least 25 basis points in rate cuts by the June FOMC meeting, up slightly from 94.4% on Friday, according to the CME FedWatch Tool.
S&P 500 inches higher as SMCI, Dollar Tree, and CoStar lead; SWK lags despite stronger industrials
07-Apr-25 14:40 ET
Dow -268.01 at 38046.85, Nasdaq +76.93 at 15664.72, S&P +5.16 at 5079.24
[BRIEFING.COM] The S&P 500 (+0.10%) is in second place on Monday afternoon, up about 5 points.
Briefly, S&P 500 constituents Super Micro Computer (SMCI 33.43, +3.61, +12.11%), Dollar Tree (DLTR 73.27, +5.72, +8.47%), and CoStar Group (CSGP 76.80, +4.18, +5.76%) pepper the top of the standings. DLTR is higher after catching a Citigroup upgrade to Buy this morning, while CSGP moves up after announcing new Board appointments.
Meanwhile, Stanley Black & Decker (SWK 59.48, -3.40, -5.41%) is lagging despite relative outperformance in industrials (-0.33%) vs. the broader market.
Gold drops 2% to settle below $2,975 as trade war fears and recession jitters spark broad sell-off
07-Apr-25 14:00 ET
Dow -194.24 at 38120.62, Nasdaq +129.43 at 15717.22, S&P +14.69 at 5088.77
[BRIEFING.COM] The Nasdaq Composite (+0.83%) has managed to climb out of the red in the last half hour, alongside the S&P 500 (+0.29%).
Gold futures settled $61.80 lower (-2.0%) at $2,973.60/oz, influenced by a broader market sell-off amid escalating trade tensions and recession fears. The intensification of the U.S.-China trade war, marked by new tariffs and retaliatory measures, heightened investor concerns about a global economic slowdown.
Meanwhile, the U.S. Dollar Index holds modest +0.2% gains to $103.18.
RH surges as reduced tariffs from Vietnam could boost margins and lower costs (RH)
A sluggish housing market, stubbornly high interest rates, inflationary pressures, and more recently, tariff-related risks, have combined to hammer shares of luxury home furnishings retailer RH (RH), which were down by 63% on the year heading into today's session. Good news has been hard to come by, but the company offered an encouraging update on one of those issues today, reminding investors that it shifted most of its China production to Vietnam and to its own factory in North Carolina. With Vietnamese leaders now looking to negotiate friendlier tariff terms with the U.S., this sourcing detail from RH carries some significant weight.
- Approximately 35% of RH's products were sourced from Vietnam last year, while about 10% were manufactured in the U.S. Vietnam, which has a trade surplus north of $120 bln with the U.S., had a tariff rate of 15% on many U.S. exports, compared to 25% tariffs from China. Vietnam is now expressing interest in lowering import tariffs on U.S. goods to zero, provided that the U.S. reciprocates for Vietnamese imports.
- If that scenario unfolds, RH will stand to benefit due to lower import costs for its products, especially in categories like wood furniture, textiles, and home decor. Lower import duties would directly reduce RH's cost of goods sold, which accounts for a significant portion of its total expenses. In FY24, COGS represented nearly 52% of total revenue.
- Consequently, RH's margins, profits, and free cash flow would improve. On that note, the company introduced its free cash flow outlook for FY25 this morning, guiding for $250-$350 mln in free cash flow compared to $(67.1) mln in FY24.
- RH's margins have spiraled lower recently, driven by rising raw materials costs and more aggressive pricing strategies amid a highly promotional retail market for furniture. In 2022 and 2023, RH's gross margin hovered in the low-50% range. More recently, though, RH has reported gross margin in the mid-40% area, including a mark of 44.2% in 4Q24.
Zero tariffs from Vietnam would significantly benefit RH by lowering its costs of imported goods, providing a positive lift to both RH's profitability and to investor sentiment, which has soured greatly this year.
Meta Platforms doubles down on AI with Llama 4 Herd and data center amid growing tariff risks (META)
Amid intensifying concerns that a global trade war will sink the digital advertising market, Meta Platforms (META) released the first two models in its Llama 4 herd -- Scout and Maverick -- and is also reportedly planning a new $1.0 bln data center project in Wisconsin. META's aggressive AI investments have catapulted the company to the front of the pack within the digital advertising space, as illustrated by robust Q4 yr/yr revenue growth of 21%, driven by new AI-powered tools that improve ad targeting and generate stronger ROI for advertisers.
While investors are increasingly scrutinizing tech companies' massive AI spending plans, especially as economic growth concerns escalate, META has earned the benefit of the doubt, proving that its AI products are providing it with a competitive edge. Therefore, the company's launch of Llama 4 Scout and Llama 4 Maverick is creating some hope that its superior tech can help to offset the fierce macro-related headwinds.
- Scout and Maverick, which are now powering Meta AI in WhatsApp, Messenger, and Instagram Direct, offer advancements from META's past Llama models in a variety of ways. For instance, these models provide higher performance in image and text understanding, enabling more precise visual question answering. Additionally, Llama Herd models are customizable, meaning that developers can train the model to suit specific needs or tasks within particular industries, languages, or types of data.
- Llama Herd models can also process data faster and more effectively than previous models, and like past models, it's available as an open-source project. As a result, developers can access the model's code, use it, modify it and improve upon it.
- Despite the tumultuous environment, there are no signs that META is planning to slow its ambitious spending plans. When META posted upside Q4 results in late January, it reiterated its FY25 capex guidance of $60-65 bln, representing a yr/yr increase of nearly 60%. After the close on Friday, Bloomberg reported that META is planning to spend about $1.0 bln to construct a new data center project in Wisconsin, putting those spending plans back under the spotlight.
- This news comes after the company announced a $10.0 bln data center project in Louisiana last December, which is expected to open in 2030. With these AI infrastructure investments, META is positioning itself to maintain or improve upon its solid competitive position, but if its growth takes a major hit as tariffs take effect, it will have a more difficult time justifying these huge cash outlays to investors,
In the long-term, META's launch of the Llama 4 Herd AI model and its new data center project in Wisconsin will drive revenue growth through enhanced AI capabilities, but tariff-related pressures are likely to weigh on the company's profitability on a shorter-term basis.
Stocks broadly lower to start session; earnings kicks off later this week with bank stocks
Stocks are broadly lower to start today's session following sell-offs on Thursday and Friday following the Trump administration's tariff rollout last week. The hope going into this past weekend was that perhaps there might be some relief, if not from a policy standpoint, but at least in terms of the rhetoric on the Sunday shows. Unfortunately, comments from President Trump and his advisers sounded more like they are not planning to course correct in the near term.
- One change we did notice was that more Republicans were speaking out against the tariffs including both business leaders, like Jamie Dimon and Bill Ackmann, and members of Congress like Senator Rand Paul and Congressman Don Bacon of Nebraska to name a few. There are also efforts to introduce legislation to return tariff decisions to Congress. However, getting a 2/3 majority to survive a likely Trump veto seems difficult.
- Despite this, some stocks have been holding up fairly well. TJX traded to new all-time highs this week, even as other retailers fall sharply today. On its last call, TJX said it has seen tariffs before and it's confident it can navigate through them. Also, direct imports from China are an extremely small percentage of its business. Other off-price retailers have not performed as well in recent weeks, including BURL and especially ROST.
- Dollar store stocks are doing fairly well today, with Dollar Tree (DLTR) and Dollar General (DG) both trading higher on Citigroup upgrades. In fact, Dollar General has been ramping nicely since early March. On its last call, it said that it was well positioned to mitigate the impact of tariffs in 2025 after successfully doing so in 2018-2019. Also, Five Below (FIVE) was upgraded by JPMorgan.
- Clearly, analysts are starting to see some value down here in these beaten up names with the idea being that consumers will continue to trade down for value. If Trump were to suddenly change course on tariffs, especially with China/Vietnam, these stocks would likely see a big move. However, if SNAP benefits are cut, that would reduce general buying power for their core lower income customers.
Looking ahead, it is hard to predict what is going to happen with tariffs. Many had hoped Trump administration officials would have done more to calm nerves over the weekend. However, the theme was more of the same, basically that the near term pain in the market is justified for longer term economic gains. On a final note, we are set to begin earnings season in the coming weeks, with some banks set to report late this week. We suspect that companies are going to be cautious with guidance, the hope is that much of that sentiment has been priced in already.
Guess? firmly in the green following a volatile morning on mixed FY26 guidance (GES)
After a rollercoaster morning, Guess? (GES +9%) is trading nicely higher today following upbeat Q4 (Jan) earnings and sales figures. The stock hit lows of -5.1% after climbing out of the gate today before buyers swooped back in. The reason for today's volatility stems from GES's mixed FY26 guidance. While the company anticipates revenue growth above consensus, its adjusted EPS outlook was underwhelming, potentially signaling margin pressures ahead. Furthermore, management remarked that tariffs announced this week have yet to be incorporated into FY26 guidance.
However, GES noted that while its earnings could be impacted, there are factors underpinning why the impact could be minimal. For example, around 75% of GES's business stems from markets outside the U.S., making it not subject to increased tariffs. Regarding the remaining 25% of GES's business, the company estimates that a third is geared toward more affluent consumers, providing increased flexibility and pricing power.
- Headline results were a solid changeup from past quarters, returning to delivering top and bottom-line upside in Q4. Adjusted EPS contracted by 26% yr/yr to $1.48 while revenue rose by 5% to $932.25 mln, both near the high end of GES's forecasts. If backing out FX impacts and an extra week last year, sales grew 14% yr/yr.
- The economic environment has been challenging, to say the least, for GES, illuminated by its stock price tumbling by 65% over the past year. On the supply side, the Red Sea crisis, which began in October 2023, disrupted GES's flow of goods while spiking shipping costs and transit times. On the demand side, consumers have been dealing with inflationary pressures, tempering their spending for more discretionary products, leading to traffic declines in GES's retail stores.
- These headwinds continued to affect performance across most geographies. In the Americas, comps tumbled by 14% in constant currency, underperforming GES's expectations. Similarly, revenue landed near the lower end of GES's estimates in Asia as traffic remained challenging. The silver lining was Europe, which houses half of GES's retail locations, registering comp growth in constant currency of +5% as higher units per transaction offset weak store traffic.
- Looking ahead, GES expects FY26 adjusted EPS of $1.32-1.76 and revenue growth of +3.9-6.2% yr/yr. The company did not touch on the March proposal from brand management firm WHP Global, which offered $13.00 per share to acquire GES. There have been a few developments since the bid was made, including GES forming a Special Committee of the Board to evaluate the proposal and co-founder Paul Marciano noting that he continues to engage in discussions regarding the transaction.
The potential margin compression and tariff-related impacts are a medium-term concern. However, there were enough encouraging trends from GES's Q4 report, particularly its revenue outlook for the year, which came in nicely ahead of analyst expectations, to ultimately push its stock firmly in the green today. The upside likely remains limited, though, at WHP Global's $13.00 takeover offer price.
Stellantis laying off US workers; tariffs may not achieve stated goals (STLA)
Stellantis (STLA) announced yesterday, according to multiple news reports, that it will temporarily lay off 900 workers at five US plants in Michigan and Indiana. This supplier of Chrysler, Dodge, Jeep and many European vehicles said this was necessary because it was pausing production at plants, one in Mexico and one in Canada. Stellantis cited the new tariff policy as the reason.
- This is a good example of just how interconnected the automotive supply chain is between the US, Mexico and Canada. And it's also illustrative of the fact that nobody knows how these tariff decisions will play out. It is simple to think that, well just build cars in America, but it's a lot more complicated than that with so many parts made in other countries.
- Also, President Trump wants US-made vehicles to be cheaper relative to foreign vehicles. However, it is very unlikely that US producers will not raise prices. Not only do they have to account for tariff-fueled higher prices for parts from foreign countries, but it is just basic business sense to maximize profit. If foreign competitors are slapped with a 25% tariff, why not price their own vehicles just slightly under that to maximize profits.
- In terms of bringing manufacturing back to the US, which is a laudable goal, it is not clear if these tariffs will accomplish that goal. It is very expensive to build new plants in the US and, in a bit of irony, these tariffs will make buying the necessary equipment more expensive. Also, labor costs are a lot higher in the US than abroad.
- We suspect that some manufacturing will return, but some companies may just wait it out. These tariffs are not US law, they are by executive order and easily changed by a new president. Also, President Trump has been fickle with respect to tariffs, turning some on, then off, then reducing percentages etc. sometimes in a week or even in the same day. President's Trump's advisers say they are permanent, but given his track record, it is hard for companies to know for sure.
- There are also legal arguments that the president does not have the authority to implement such massive tariffs without Congressional approval. The US Constitution squarely puts the power of the purse and taxation in the hands of Congress. Congress has given the President authority to make changes in emergencies, but this seems like the President is making wholesale changes to our economy without Congressional approval. Court rulings could limit the tariffs.
The market is down sharply again today as the trade war escalates, highlighted by China imposing 34% reciprocal tariffs. Time will tell if these Trump tariffs are just a negotiating tactic and perhaps short term in nature. However, foreign countries seem willing to dig in their heels, both in terms of tariffs of their own and in their angry rhetoric. It may also drive some to band together and focus more on selling goods to each other, which could hurt the US in the long run.
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