Closing Recap

Thursday, January 02, 2025

U.S. stocks held in positive territory most of the morning, trying to snap the S&P 500 4-day losing streak helped by some favorable economic data, but stocks slumped early afternoon, with steady selling pressure this afternoon. The “SPY” is down a little over -2% during the famed “Santa Clause rally” period (last 5 trading days of 2024, first 2 of 2025), with tomorrow pending, as seven of eleven S&P sectors finished negative on the day (energy, utilities, communications and healthcare were higher). Sector positioning to start the New Year saw big winners in 2024 sell off (AAPL, TSLA), while last year decliners (solar, cannabis, biotech) saw bounces. Macro concerns also weighed on sentiment as the FBI is investigating possible acts of terrorism after at least 15 people were killed and >35 injured yesterday in a New Orleans truck attack; authorities also looking into explosion of Tesla Cybertruck outside Trump International Hotel in Las Vegas. A strong dollar (at 2-year highs) and a reversal higher in Treasury yields also causing some investor angst out there.

With stocks in recent downtrend, few notable data points as: @bespokeinvest tweeted “The S&P 500 is in oversold territory (>1 st. dev. below 50-DMA) for the first time since August 12th. Price is finally oversold, but this market is much more oversold than price suggests given that December was one of the worst months for breadth in history.” Also, @bespokeinvest noted “Looking like this will be the third time in a row that the S&P has been down on the last/first trading days of the year.” Kobeissi Letter tweets: “Shocking stat of the day: The top 10 stocks in the S&P 500 are now almost 800 TIMES larger than the 75th percentile stock. Not even the Great Depression in the 1930s saw market concentration this high. It’s now 50% MORE concentrated than 2001.”

Reminder that U.S. stocks closed out 2024 with losses, as the S&P 500 fell -2.5% in December, the Nasdaq climbed 0.48%, and the Dow fell -5.27%, but still ended the year with big gains. For the year, the S&P 500 gained 23.31% (and up 53.19% over past two years, the biggest 2-year % jump since 1997-1998), the Nasdaq climbed 28.64%, and the Dow climbed 12.88%. For 2024 SPX sectors, Communication Services (XLC) and Tech (XLK) led the way higher with surges of 33% and 28% and Consumer Discretionary (XLY) gained 25.4%. Financials (XLF) were best outside of tech, rising 28.5% on the year. Materials (XLB) were down (-1.8%), as the sole losing S&P sector, with Healthcare (XLV) +0.87%.

• U.S. S&P Global December final manufacturing PMI at 49.4 (vs flash 48.3) and S&P Manufacturing PMI Final Actual 49.4 (Forecast 48.3, Previous 48.3).
• November construction spending unchanged (consensus +0.3%) at $2.153 trln, vs Oct +0.5% (prev +0.4%); US Nov private construction spending +0.1%, public spending -0.1%.
• U.S. 30-yr fixed rate mortgages 6.91% Jan 2 week, highest since July 3, 2024 week, vs 6.85% prior week.

• Gold climbs 1.06% to three-week-high $2,669 an ounce despite dollar strength, fueled by safe-haven buying, while the market took out positions ahead of the Federal Reserve’s rate outlook and President-elect Donald Trump’s looming trade tariffs. Traders await next week’s U.S. job openings data, the ADP employment report, the Fed’s December FOMC meeting minutes, and the U.S. employment report to gauge the interest-rate outlook for 2025.

• The U.S. dollar index (DXY) extended its more than 8% gains in 2024, rising over +0.8% to 2-year highs topping 109.40 with big advances vs. the euro and the Pound on the first day of 2025 trading. Expectations that U.S. interest rates will remain high relative to peers keeps the buck stronger vs. rival currencies as the euro fell 1% to lows around 102.50, lowest since November 2022 (down over 8% since its late September highs above $1.12). The British Pound fell -1.25% to 1.2362, its lowest since April. U.S. President-elect Donald Trump’s policies are widely expected to not only boost growth but also add to upward price pressure. That will lead to a Fed cautious about cutting rates too much further, in turn underpinning U.S. Treasury yields and boost dollar demand.

• Monthly electric vehicle delivery data released:
• TSLA shares dropped after reported Q4 deliveries 496k actual vs. 512k estimated; Total Q4 production was 459,445; the company delivered a total of 1,789,226 vehicles in 2024 (-1% YoY); Tesla also shared that they deployed 11GWh of energy storage in Q4 2024, up 243% YoY.
• BYDDF said 2024 new energy vehicles sales +41.26% to 4.2721 mln units; December new energy vehicles sales 514,800 units
• LI delivered 58,513 vehicles in December 2024, reflecting a 16.2% year-over-year increase; total deliveries for full year of 2024 reached 500,508 vehicles.
• NIO said 31,138 vehicles were delivered in December 2024, increasing by 72.9% y/y; 72,689 vehicles were delivered in three months ended December 2024, increasing by 45.2% y/y; 221,970 vehicles were delivered in 2024 in total, increasing by 38.7% y/y.
• XPEV said 36,695 units were delivered in December 2024, an 82% increase y/y; 190,068 units delivered for full year 2024, a 34% increase y/y; 91,507 units delivered in q4 2024, a 52% increase y/y, exceeding upper end of quarterly guidance range for Q4.

• In Leisure: MODG was upgraded from Hold to Buy at Jefferies and raised tgt to $13 from $11 saying shares are pricing Callaway at a discount to GOLF despite faster 3Y growth, and ascribing no value to Topgolf. While Top Golf fundamentals are weak, and MODG has suffered mis execution, and said shares appear oversold.
• In Casino/Gaming: (WYNN, MLCO, LVS) Overnight data showed Macau’s gaming revenue fell -2% in December, missing analysts’ expectations as scrutiny over gambling activities tightened during Chinese President Xi Jinping’s visit to the world’s biggest casino hub. Gross gaming revenue reached 18.2B patacas ($2.3B) for the month, according to data released by the Gaming Inspection and Coordination Bureau on Wednesday. That compared with the median analyst estimate of a 2% y/y increase and is still 20% lower than the pre-pandemic level in 2019.
• In Ride Hailing/Food Delivery: UBER was downgraded to Market Perform from Market Outperform as the rideshare industry transitions to Avs, and believes AVs offer consumers a better experience, while Waymo is blitz scaling and has nearly unlimited access to capital given the size and potential of the AV ride-share market.
• Goldman Sachs added NCLH, UBER and BDC to U.S. conviction list, while removing FOXA, PH, and TPG. For BDC, expect the cyclical recovery in industrial end markets and its higher-margin software solutions business to drive shares higher. For NCLH, look for improving margins from strong demand momentum for cruises and cost saving initiatives. Finally for UBER, focus on scaling end-markets, rising profitability levels, and increased evidence of the platform cross-sell and ‘flywheel’ effects.

• Energy Sector: oil stocks were among the top performers in the S&P 500 today, with the XLE rising over 1.7% late morning as oil prices started 2025 higher.

• In Banks: USB was upgraded from Neutral to Buy at DA Davidson and raised tgt to $60 saying after several years of meaningful stock underperformance and losing its premium valuation, believes USB is in the early stages of an inflection and set to regain positive operating leverage above 0.5%, after missing it 7 out of the last 8 years.
• In Commercial Real Estate: Jefferies upgraded CBRE to buy with $152 PT as thinks leadership in outsourcing should continue to drive DD top-line growth, and downgraded CWK to Hold in 2025 outlook for the CRE services space noting CWK’s services segment has underperformed peers. Jefferies said they anticipate that greater stability in rates should lead to a transaction recovery in ’25.  
• In Industrial REITs: EGP was upgraded to Buy in industrial REITs at Jefferies saying is well-positioned, like STAG and LXP, to capture this demand and uniquely benefit from near shoring manufacturing to Mexico. Jefferies updated its analysis on the US manufacturing boom and its positive impacts on warehouse demand; expects Trump won’t hinder the Biden stimulus for manufacturing.
• In Storage REITs: CUBE was downgraded to Hold from Buy at Jefferies while cautiously positive on the Self-Storage sector into 2025; said see EXR and NSA as uniquely positioned to drive earnings. Jefferies said they expect initial guidance will be conservative so there is no rush to buy ahead of the quarter; however, it believes that any recovery in the housing market, in 2025, will be met by renewed storage demand and upward revisions to ests.
• In Healthcare REITs: Jefferies upgraded WELL to Buy and downgraded HR to Hold saying within Healthcare, they prefer Senior Housing (SHOP) as deliveries are muted while the 80+ population is entering a high-growth period. VTR is their top pick, but it is also positive on WELL and SBRA. Also said Skilled Nursing trends have stabilized which shifts the focus to investment opportunities for this group and sees CTRE as better positioned vs OHI.
• In Data Center/Tower REITs: Jefferies said they believe we are in the very early innings of data center demand driven by AI and expect power limitations, supply chain bottlenecks on new construction, and continued increases in market rents. For Towers, domestic carrier CAPEX investment in 5G has disappointed, downgraded CCI to Hold saying a sale of the Fiber business is unlikely to be a positive catalyst and AMT top pick; DLR top pick in Data Center
• In Retail REITs: Jefferies said BIG, Container Store and PRTY closures raise ’25 bad debt, but retail supply is tight, and strips’ earnings remain healthy in ’25 vs ’24. The firm upgraded IVT to Buy on solid growth from MTM oppty & acquisitions facilitated by stronger cost of equity capital. They downgraded KIM and KRG to Hold. The firm said enclosed malls’ valuation is reasonable, with continued recovery & stabilization as upgrade SPG and MAC to Buy.
• In Residential REITs: Jefferies downgraded INVH and UDR, to Hold from Buy saying continued supply likely slows top-line growth. The firm reaffirms its Buy on ESS, whose West Coast portfolio is the least exposed and benefits more from West Coast job recovery, which has been slow to return and remains Buy on AMH for its diversified platform and for its consistent execution & stable & leading growth, supporting a continued multiple premium.

• CAPR announced the completion of the submission of its Biologics License Application, BLA, to the U.S. FDA, seeking full approval for deramiocel, an investigational cell therapy, to treat patients diagnosed with Duchenne muscular dystrophy, DMD.
• NMRA said a study of major depressive disorder treatment navacaprant didn’t demonstrate a statistically significant improvement on the primary endpoint of change from baseline in a scale that measures depression at Week 6 or the key secondary endpoint of change from baseline in a separate scale.
• VSTM adds to Tuesday’s 40% advance after the FDA granted priority review for its ovarian cancer combo therapy.
• Several analysts out with 2025 biotech outlooks:
• Stifel said IOVA was their top pick in 2025 in Biotech as see little competition for Amtagvi in late-line melanoma and believe the growing ATC footprint and improvements in out-of-specification (OOS) rates will support sufficient revenue growth; think ACLX, IRON have clinically de-risked assets and are well positioned heading into regulatory catalysts; and positive on early-stage clinical catalysts from Buy-rated JSPR and IDYA.
• Canaccord said they see for 2025 Biotech: 1) M&A pickup should follow narrower spreads, 2) 2026 Medicare Price cuts — strong impetus for small-cap Biotech M&A, 3) Pre-revenue Biotech M&A picking up in recent years, and 4) Expect orphan M&A preference across therapeutic areas.

• In 2025 Aerospace & Defense outlook, Deutsche bank upgraded RTX to Buy from Hold (PT to $140 from $131) while downgraded LMT to Hold from Buy (PT to $523 from $611) and TDG to Hold from Buy (PT to $1,348 from $1,444). The firm said they are positive on the OE complex entering 2025, supported by improving production momentum at Boeing exiting the IAM strike and extensive buffer inventory of engines and clean fuselages to support the ramp. GE remains the top pick in aftermarket and RTX, NOC, and CW are favorite ideas in defense.
• Raymond James with changes in Defense & Gov’t IT Services as they upgraded CACI, MMS, & VVX to Outperform and downgraded PSN and LHX to Market Perform. While 2023 and the first 11 months of 2024 were the best periods for the Government Service cohort in more than 20-years; a new administration, a provocative group of Political appointee nominations, and DOGE have significantly dented investor psyche, the trading multiples, and halted stock momentum over the last 45-days. Raymond James said they believe the dislocation in equities has created opportunities across our Gov IT coverage.

• In Hardware: AAPL estimates were lowered at UBS saying that following another month of soft iPhone sell-through, the firm lowered its iPhone unit and revenue estimates that were already below consensus. Given that October and November typically account for 66% of iPhone sell-through in the December quarter, an 8% y/y decline in November sell-through, according to Counterpoint, leads UBS to lower its December iPhone estimates.
• In IT Servies & Consulting: NET was double upgraded from Sell to Buy at Goldman Sachs and raised tgt to $140 from $77 noting their Sell thesis was predicated on post COVID normalization driving more muted revenue growth, and the company’s progress in network security and in the enterprise taking longer and costing more than planned.
• In Semiconductors: ALAB was downgraded from Outperform to Market Perform at Northland with $120 tgt on valuation and the expectation that investors are likely to take profits early in the New Year. ALAB is trading at 44x CY28 consensus of $2.99. OLED tgt lowered to $200 from $220, though conviction in OLED to outperform in the next 12 months is higher than before, despite the stock’s disappointing performance since 3Q earnings.
• In Cybersecurity Software: CHKP was downgraded from Buy to Neutral at Goldman Sachs after the co delivered >10% revenue growth and >20% EPS growth, driving a re-rating in the stock. But now, Goldman believes EPS growth in 2025 is likely to be muted and is likely to weigh on the stock.