Closing Recap

Friday, February 07, 2025

US equity futures remained around the unchanged mark overnight ahead of this morning’s US payrolls report. Earnings reports and guidance continue to be met with outsized reactions in many cases but have been sufficient to keep investors from heading to the exits more broadly. Of the mega-cap names, last night we saw a solid result from Amazon but a softer revenue guide with foreign exchange and calendar impacts. Shares were only down about 3% pre-market. In economic data, a weaker payrolls number was muddied by revisions, a dip in the unemployment rate and an uptick in average earnings. The end result was a drop and pop in the futures to put us in the green. Sometimes even messy data is good enough to clear some uncertainty and spur a bit of relief rally. But a dip in the Michigan consumer sentiment reading and rise in year-ahead inflation expectations quickly turned gains into losses for the indices. Post-data, the implied probability of a Fed cut was only 6.5% in March, 28.2% in May and 52.7% in June, but the March 2026 implied rate remained well off the current at 3.919%. On sentiment basis, today’s Fear & Greed Index was 47/100 (Neutral) versus 41 (Fear) yesterday and 40 (Fear) a week ago. Early breadth favored decliners by about 3:2 as indices were generally in the red and small caps were mixed on a relative basis with IWM (-0.31%) versus SPY (-0.26%) and QQQ (-0.46%). Sector-wise, early performance showed eight sectors gaining versus only three declining with Energy (+0.50%), Utilities (+0.49%) and Industrials (+0.30%) leading, while Real Estate (-0.31%), Materials (-0.55%) and Consumer Discretionary (-0.91%) lagged.

Following another dip on potential Trump plans to announce the implementation of reciprocal tariffs (no other specific provided), equities held modest declines into midday. The remainder of the day saw continued deterioration and equities were near the lows, heading into the final hour of trading. Breadth weakened to 3:1 in favor of decliners and the sector spread widened to ten decliners versus only one gainer. Only Energy (XLE) remained in the green. Consumer Discretionary (XLY, -1.84%) and Materials (XLB, -1.3%) were the largest decliners. From and growth and value perspective, both were in the red, but value was the outperformer at -0.58% (Russell 1000 Value) versus its Russell 1000 Growth counterpart at -1.2%. Lastly, in honor of the Super Bowl, it is worth noting that AFC victories have been very good for the bulls (at least since 2004) per @ryandetrick with the last four AFC wins resulting in +23.3%, +24.2%, +16.3% and +28.9% S&P annual gains. In fact, 2015 was the only year with an AFC victory that saw an S&P annual decline (-0.7%). Also of note, is that Philadelphia World Series and Super Bowl wins have not been good omens. In 2018 after the Eagles victory, stocks posted their worst year since 2008. After the Phillies victory in 2008 we had the GFC. The 1980 Phillies win resulted in the double-dip recession of the 1980’s. No preference here…just sayin’.

• January unemployment rate slipped to 4.0% from 4.1% prior while average hourly earnings rise +4.1% from year earlier (above est. +3.8%) and on a M/m average hourly earnings rose +0.5% from prior month (above est. +0.3%).
• University of Michigan surveys of consumers 1-year inflation outlook prelim Feb 4.3% vs final Jan 3.3% and the University of Michigan surveys of consumers 5-year inflation outlook prelim Feb 3.3% vs final Jan 3.2%.
• University of Michigan surveys of consumers sentiment prelim Feb 67.8 (consensus 71.1) vs final Jan 71.1; the current conditions index prelim Feb 68.7 (consensus 73.0) vs final Jan 74.0; University of Michigan surveys of consumers expectations index prelim Feb 67.3 (consensus 70.0) vs final Jan 69.3.
• U.S. wholesale inventories fell in December amid strong sales growth. Inventories, a key part of gross domestic product, fell 0.1% on a year-on-year basis in December. Private inventory investment was a big drag on GDP in the fourth quarter, restricting economic growth to a 2.3% annualized rate. The economy grew at a 3.1% pace in the July-September quarter. Sales at wholesalers increased 1.0% in December after rising 0.9% in November.

• WTI March crude futures gained overnight then faded on headlines around Trump tariffs and concerns about flow-through to economic growth and settled +$0.39/bbl, or +0.55%, at $71.00. Despite the modest gain, crude finished with its third consecutive weekly decline and is more than 10% off the mid-January highs. Brent similarly gained $0.37/bbl, or +0.5%, to $74.66. There remains plenty of geopolitical upheaval to lend support from the supply side even if the demand side remains uncertain ahead of more clarity on Trump policies.

• Footwear/Apparel Retail: NKE was downgraded to Neutral from Buy at Citigroup after attending a sell-side event to meet with new CEO Elliott Hill. After discussing the key building blocks and challenges to achieve a turnaround, Citi says it no longer believe F26 will inflect the way it hoped, either on the sales or EBIT margin line. DECK was upgraded to Buy from Neutral at Citigroup and maintains $215 tgt saying they believe the 24% sell off in shares post Q3 is unwarranted, and largely driven by fears of slowing Hoka growth, which it views as overblown. SKX shares declined after guiding annual sales, profit below estimates after Q4 results miss – Q4 EPS $0.65 vs est. $0.75 on sales $2.212B vs est. $2.22B; guides Q1 sales $2.4-2.43B vs est. $2.486B and EPS $1.10-1.15 vs est. $1.55.
• In Beauty and Consumer Staples: ELF shares tumble after mixed Q3 results and  lowered fiscal-year projections for sales and profits, citing softer-than-anticipated January trends; guides FY25 adj EPS outlook to $3.27-$3.32 from $3.47-$3.53 and lowers FY25 sales outlook to $1.3B-$1.31B from $1.315B-$1.335B, saying it takes a prudent approach to guide given softer than expected trends in January. ELF report marks the third beauty company disappointing this quarter after EL & LRLCY both disappointed. MATW reported lower-than-expected revenue and EBITDA due to weaker-than-expected Industrial Technology sales.
• In Food & Beverages: HSY was upgraded to Neutral from Sell at Citigroup noting the stock is down 24% over the past 6 months, and doesn’t see much near-term upside in the stock price but says thinks yesterday’s 2025 guidance sets a reasonable floor off which the company is likely to grow in 2026, even if cocoa prices do not decline. FLO forecasts 2025 sales between $5.40B-$5.49B above est. $5.22B. PFGC was downgraded to Neutral from Overweight at Piper after Q2 results as view the risk/reward as more balanced at current levels.

• In Online travel/lodging: EXPE shares jumped on Q4 results as posted better-than-expected gross bookings in the final months of 2024, reflecting resilient demand for travel during the winter holiday season; Q4 adj EPS $2.39 vs est. $2.04, adj EBITDA $643Mm vs est. $570.9Mm on revs $3.184B vs est. $3.07B.
• In Casino & Gaming: DKNG, FLUT, PENN, CZR, MGM shares active ahead of Super Bowl weekend where online betting is expected to break records. American sports bettors are projected to legally wager a record $1.39 billion on Super Bowl LIX according to the American Gaming Association (AGA). In terms of earnings, BYD Q4 results better than expected (Q4 adj EPS $1.96 vs. est. $1.79; Q4 revs $1.04B vs. est. $1B).
• In Theme Parks: Keybanc said their Domestic geolocation data tracking Theme Park Attendance appears negative for Disney (DIS) and Universal (CMCSA).  January’s attendance for Disney was -8% y/y (vs. -4% in December) and -12% y/y for Universal (vs. +1% in December). Attendance decelerated for all four locations KEYB tracks.

• In Chemicals: APD was downgraded to Neutral from Overweight at JP Morgan as thinks there are risks to the APD earnings growth rate from the flattening out of industrial gas prices as well as from negative currency effects. FMC was downgraded from Buy to Neutral at UBS and slash tgt to $38 from $66 saying they no longer see the potential for a 2025 market bounce in crop chemicals demand, and strategy pivot now adds a degree of execution risk.

• In FinTech: AFRM reported better-than-expected Q2 revenue as growth in gross merchandise volume, or GMV increased 35% y/y and revs grew even faster than volume, increasing 47% y/y, reflecting the company’s focus on strong unit economics (Q2 EPS $0.23/$866M vs. est. loss -$0.15/$807M) and FY guide topped Q2 upside.
• In Insurance: In P&C space, KBW downgraded SIGI to Market Perform and lower ests following its 4Q24 earnings report assuming higher core loss ratios partly offset by faster premium and investment income growth; we currently model no reserve development in either 2025 or 2026. KBW also downgraded AFG to MP from OP based on valuation and lower ests to mostly reflect higher 1Q25E catastrophe losses, higher core loss ratios, and lower reserve releases, partly offset by lower (but rising in 2025) expense ratios.

• CUZ reported 4Q24 FFO of $0.69, which was ahead of consensus ($0.67); mgmt introduced FY25 FFO guidance of $2.73-$2.83, which is 1.5% ahead of consensus ($2.74) and represents y/y growth of 3.3% at the midpoint.
• EGP reported in-line 4Q FFO of $2.15/share, highlighted by a 250-bps moderation in cash SPNOI growth (to 3.4% from 5.9% in 3Q) and a 40-bps sequential decrease in occupancy. Moreover, management issued initial FY25 guidance that missed consensus by ~0.3% at the midpoint, but SPNOI growth forecast of 5.4-6.4% represents a reacceleration from current levels and is slightly higher y/y at the midpoint
• PECO reported Q4 Core FFO of $0.62, which is in line with consensus and mgmt affirmed its FY25 Core FFO guidance of $2.52-$2.59/share, which is relatively in line with consensus of $2.55 at the midpoint.
• REG reported a strong 4Q beat and better than expected 2025 outlook; NAREIT FFO of $1.09 topped consensus by $0.02/share and mgmt issued initial FY25 FFO guidance of $4.52-$4.58, which is 1.6% above consensus.

• NBIX reported Q4 results with a conservative guidance view and lowers its FY25 Ingrezza sales estimate to $2.58B, which translates to lower growth than investors expected, and higher operating expense numbers based on investments on the commercial and R&D side.
• Healthcare technology: DOCS shares rose as reported a large top- and bottom-line beat marked by revenues that grew 25% y/y (~10% above consensus) at 60.5% adj. EBITDA margins (topping consensus by ~23%) and raised its FY guidance both on the top and bottom lines with healthy ~13% growth targeted for F4Q.
• Healthcare Facilities/Services: EHC reported Q4 EBITDA meaningfully ahead of the Street, driven by robust SS volume growth and impressive cost controls. More importantly, guidance for 2025 brackets the Street

• LITE reported FQ2 revenue/EPS of $402M/$0.42, consistent with the preannouncement; Management guided FQ3 revenue/EPS to $410M 425M/$0.47–$0.53, above consensus of $413M/$0.42.
• NET reported an impressive quarter, as the company added a record number of Paying Customers, where yr-yr growth accelerated for the fourth consecutive quarter; and greater than 50% of Cloudflare’s $1M-plus New Logos in CY24 were added during the December quarter.
• PINS shares soared after Q4 results and Q1 guidance were stronger than expected, reflecting solid MAU growth and product initiatives gaining traction.
• PRO reported a top-line beat and better EBITDA and FCF in Q4, and is guiding 2025 revenue in line with expectations, while EBITDA and FCF guidance are solidly ahead; also, management noted seeing improvement in the Travel business in Q4.
• TTWO reiterated its plan to launch the highly anticipated Grand Theft Auto VI in fall 2025; management expressed optimism around the ability to scale IP in the coming years; guides Q4 revs $1.52-1.62B vs est. $1.538B and adj EBITDA $223-277Mm vs est. $327.92Mm.

• MPWR reported strong Q4 results and Q1 guidance, which both exceeded expectations, mostly driven by Auto, which exceeded expectations by ~15%, while guidance reflects strength in Auto, Memory, PCs, and Comms. Enterprise Data is expected to be down q/q in Q1 and flat for 2025 with growth expected to be 2H weighted.
• MCHP reported FQ3 results, which were consistent with its negative pre on Dec 2, and guided FQ4 lower as the company indicated demand was particularly weak across auto and industrials and noted that customer inventories remain high mostly at direct customers, whereas disty inventory is getting closer to normalizing.
• SYNA posted strong F2Q results and F3Q guidance, which were above expectations saying they continue to see a broader-based recovery continuing in core IoT and expanding somewhat into Enterprise & Auto.