Closing Recap

Monday, February 24, 2025

Stocks ended at the lows, rolling in the final minutes of trading as stock markets picked up where they left off last week. U.S. stocks were mostly lower on Monday as the Dow Jones Industrial Averages managed a modest rebound after falling roughly 1,200 points the prior two sessions, while the tech heavy Nasdaq underperformed, and the S&P ended -0.5% as investors await one last flurry of quarterly earnings this week along with key inflation data coming up (GDP on Thursday and PCE inflation data on Friday). Bond prices advanced (yields fell) along with gold as haven assets are leading while today’s top S&P sector movers were Healthcare, REITs (seen as defensive) along with financials. It was a quiet day overall related to headlines out of Washington, earnings and data, but that is expected to change in the next few days.

Momentum sectors/stocks from 2024 are seeing much of the “wind in their sails” being taken out in 2025, with big declines in recent weeks for AI/data center related stocks, which pulled back sharply again today. Shares of data center declined following a report that Microsoft was pulling back data center leases, which generally weighed on artificial intelligence stocks. TD Cowen analyst published a report on Friday stating that Microsoft has canceled leases with “at least two data private center operators” in the U.S., amounting to a few hundred megawatts of capacity. The implications led to broad weakness in nuclear/power names such as OKLO, CEG, NRG, SMR, VST, PWR, PRIM, GEV, and in data center cooling related space such as VRT, DELL, ETN, SMCI among others. AI space is not the only group smashed as homebuilders (TOL, LEN, KBH) and quantum compute names (IONQ, RGTI, QMCO) have slumped in 2025 as well and Bitcoin related miners are also seeing broad weakness YTD (BTDR, CORZ, HUT, HIVE, MARA, WULF all down between 15%-30%). Lunar/space another sector hot in 2024 and pressured so far in 2025 (LUNR, ACHR, RKLB).

On the macro front it is a bit quieter this week, outside of fluid headlines out of Wahington DC related to trade, tariffs, cost cuts, etc. The biggest economic event is Friday’s January PCE reading, the Fed’s preferred inflation measure, along with GDP data on Thursday. We also have Mexico/ Canada tariff decisions coming the first week of March (Trump has said 25% tariffs on Canada and Mexico will go forward), while China tariffs remain a wild card, along with debt ceiling, and continued tariff talk from President Trump. Additionally, markets also watching headlines related to Russia/Ukraine.

• Bond prices advanced and Treasury yields fell, extending its recent pullback (10-yr has fallen 4-straight weeks coming into this one). The U.S. Treasury sold $69B in 2-year notes at high yield 4.169%, vs. when issued at 4.18% with bid-to-cover ratio 2.56, non-comp bids $560.74M as primary dealers take 6.87% of U.S. 2-year notes sale, direct 7.64% and indirect 85.49% (record levels of demand in strong auction).

• In Restaurants: DPZ shares slipped after results as Q4 EPS $4.89 vs. est. $4.90; Q4 revs $1.44B vs. est. $1.47B; Q4 comp store sales up 0.4% vs. est. 1.63% and Q4 international comp sales up 2.7%; raises quarterly dividend 15% to $1.74 per share; WING was upgraded to Buy from Neutral at Guggenheim and reinstitutes a $280 tgt saying appreciation for both the competitive strengths of the business and the sustainability of strong unit growth gives them the confidence to underwrite a healthy multiple for shares despite soft same store sales trends to start 2025. SBUX to lay off more than 1,000 workers worldwide.
• In Food & Beverages: CAG was downgraded to Neutral from Buy at Goldman Sachs with $26 tgt saying after a second operational issue in six months, the path of improvement for CAG has been elongated with less visibility and sees a more balanced risk/reward set-up for CAG. In Food Delivery, shares of UBER and DASH edged higher after investment group Prosus said it agreed to buy Just Eat Takeaway.com for $4.3 billion, which also lifted shares of other food delivery companies in Europe such as British rival Deliveroo and German peer Delivery Hero as both traded up

• Home builders (BZH, DHI, KBH, LEN, PHM, TOL) were mixed on Monday, in the middle of their worst 4-month performance relative to the broad market since the housing/financial crisis in the late 2000s after weaker housing data, concerns of less aggressive rate cuts and weaker housing earnings in recent weeks. @KobeissiLetter noted “US all-cash home purchases declined by 60,469 in 2024, to 700,445, the lowest in at least 10 years. Over the last 3 years, the number of all-cash purchases dropped by a whopping 383,093, or 35%.”

• In Casino & Gaming: BYD was downgraded to Equal Weight from Overweight at Morgan Stanley saying its thesis that stabilizing trends in the LV locals’ market, improved performance in Regions, and a focus on buyback vs M&A has all played out and from here sees a more balanced risk-reward.
• In Lodging/Online Travel: TH shares sunk after saying the US government is ending its services agreement with the company’s nonprofit partner running the Pecos Children’s Center, an emergency intake site for unaccompanied migrant children. The move comes amid rapid cuts and other changes under President Trump’s second term.

• In FinTech: XYZ was upgraded to Outperform with $89 PT (down from $100) at BMO Capital saying they see an attractive entry point following the Q4 sell-off and believe Street estimates now have less downside risk, while sentiment/positioning is more balanced.

• AXSM said its drug, Symbravo, met the main goal in a late-stage trial to treat migraine headaches in patients who didn’t respond well to other treatments; Symbravo is a combination of two medicines, meloxicam and rizatriptan.
• BMRN upgraded to Outperform from Perform at Oppenheimer after posting a strong Q424 ($747M total revenue, handily beating $712M consensus) and gave 2025 guidance ranges for which top- and bottom-line low-ends were high to the Street; has rising confidence in the company’s longer-term financial outlook.
• BMY won FDA priority review for its application seeking approval of the combination of its Opdivo and Yervoy cancer drugs for the early treatment of certain patients with colorectal cancer.
• EXEL was downgraded to Equal Weight from Overweight at Wells Fargo saying while there is a better chance than not that zanzalintinib’s STELLAR-303 trial in metastatic colorectal cancer will be positive in the second half of 2025, it seems priced in at these share levels.
• ITCI was downgraded to Neutral from Outperform at Mizuho after JNJ agreed to acquire all of the company’s outstanding shares for $132 in cash and the firm sees no reason for the pending takeover deal to get blocked.
• IVVD shares fell after saying the FDA has declined to expand the emergency use authorization of its COVID-19 prevention drug; expansion was to include those whose immunity is impaired by certain conditions such as cancer and organ transplant, and for whom alternative options are not accessible or appropriate.
• SMMT said it is collaborating with PFE to study its experimental drug ivonescimab in combination with several of Pfizer’s targeted cancer therapies called antibody drug conjugates (ADCs) across different types of tumors.

• In the Defense sector: PLTR extended its recent pullback on DOGE budget concerns and after CEO adopted new share sale plan; in research, RTX was upgraded to Buy from Neutral at UBS as believes RTX is well positioned at the intersection of strength in commercial OE and aftermarket, Defense has international growth drivers, and it sees a number of company specific drivers. UBS also upgraded TDG to buy from Neutral as expects aftermarket growth to stabilize and accelerate from FQ1, with above-consensus margin expansion and the potential for a step-up in capital deployment. Group saw a little bounce after recent selloff in names on DOGE budget cut fears.

• In Metals: CENX was upgraded to Outperform from Market Perform at BMO Capital saying Century’s valuation is compelling following the recent sell-off and the market is underappreciating the potential benefit from currently healthy MWP and aluminum price, Hawesville optionality, and the increasing potential for shareholder returns. Gold miners holding recent gains as gold prices remain around record highs.
• In Chemicals: CF was upgraded to Neutral from Underperform at Bank America with an unchanged price target of $84 saying following the post-earnings selloff in shares, the firm views the stock as reasonably priced and sees a more balanced risk/reward; WLK Q4 missed across quarter with EPS, revenue and EBITDA all below expectations.

• U.S.-listed shares of Chinese companies dropped, pulling back after recent strength, led lower after a White House official on Friday said Trump signed a memorandum that will direct the Committee on Foreign Investment in the United States to restrict Chinese investments in strategic areas. Shares of ecommerce names such as BABA, PDD, JD declined as well as gaming/search names like BIDU, NTES, BILI etc. among others.
• AAPL announced its largest-ever spend commitment, saying it plans to spend and invest more than $500B in the U.S. over the next four years. The spending "will support a wide range of initiatives that focus on artificial intelligence, silicon engineering, and skills development for students and workers across the country," the company said in a statement. Apple said it plans to open a new advanced manufacturing facility in Houston to produce servers that support Apple Intelligence and will add about 20,000 research and development jobs across the U.S.
• MDB announced it has acquired Voyage AI, a pioneer in state-of-the-art embedding and reranking models that power next-generation AI applications.
• TWLO was upgraded to Overweight at Morgan Stanley and raised to $160 from $144 saying they see the recent ~20% sell-off post Q4 results as overdone, creating attractive buying opportunity and notes recent checks and exit growth rate from Q4 give US confidence in ability to execute model laid out at Analyst Day.
• Unity Software (U) shares fell after the company announced a proposed $500M offering of convertible senior notes.