Market Review: January 14, 2025

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Closing Recap

Tuesday, January 14, 2025

Index

Up/Down

%

Last

DJ Industrials

221.16

0.52%

42,518

S&P 500

6.69

0.11%

5,842

Nasdaq

-43.71

0.23%

19,044

Russell 2000

24.84

1.13%

2,219

 

 

 

 

 

 

 

 

 

It was a volatile day for U.S. stocks on Wall Street that saw big swings to the upside and downside ahead of key inflation data tomorrow morning, with major averages finishing mixed. U.S. stocks slumped initially behind declines in healthcare and technology stocks as investors digested a somewhat “cooler” PPI inflation report but await the consumer price index (CPI) inflation data point tomorrow at 8:30 am as well as quarterly earnings from some of the biggest banks in the world (JPM, WFC, C, GS). The December producer price index (PPI) came in below consensus estimates but was still higher than November as inflation continues to accelerate, just at a slower pace. Also, Bloomberg reported overnight that members of Trump’s economic team are considering a gradual approach to increasing tariffs, potentially by 2% to 5% per month, to boost negotiating leverage while mitigating inflation risk. That news also led to upbeat sentiment with stocks opening higher initially. However, as has been the case since December 18th after the FOMC meeting showed the likelihood of less rate cuts due to a strong economy/rising inflation, markets failed to hold gains, and the bounce was yet another selling opportunity. Stocks bounced a little after noon, with an impressive midday rally as NYSE breadth favored advancers by a more than 3:1 margin at that point in broad strength as financials, materials, industrials, and utilities all rose over 1% while healthcare remained pressured on Eli Lilly (LLY) weakness. Stocks dropped and popped again in the afternoon as 8 sectors finished in the “green” vs. only 3 in the “red” while the Russell 2000 rose over 1%.

 

Economic data preview for tomorrow morning at 8:30 am et. The increase in Dec Consumer Price Index (CPI) is expected to be the same as in November at +0.3%. Year-on-year, CPI probably advanced +2.9% last month (vs. +2.7% prior). The rise in core CPI (ex: food & energy) likely eased to +0.2% in December, after gaining +0.3% in November. On an annual basis, the core CPI rate in December is projected to remain at 3.3% reached in the previous month. Separately, the NY Fed manufacturing index reading for January is projected to be at 3, up from 0.20 recorded last month.

Economic Data

  • December producer price inflation rises +0.2% vs. est. +0.3% m/m and was below the prior month reading of +0.4%, but the y/y headline PPI was +3.3% (vs. est. +3.4%) but notable above last month’s +3.0%. On a core basis, or PPI ex food & energy, m/m PPI was flat vs. est. +0.3% (prior month +0.2%) but y/y rose +3.5% (better than the +3.8%). But was above the prior month reading of +3.4%. A smaller increase than expected, but PPI inflation is now at its highest since February 2023. Next up is the December CPI reading tomorrow 1/15.
  • U.S. Dec budget deficit $87B (consensus $75B deficit) vs Dec 2023 deficit $129B; U.S. fiscal 2025 year-to-date deficit $711B, record high for first 3 months of a fiscal year, vs comparable fiscal 2024 deficit $510B; U.S. Dec budget outlays $541B vs $559B in Dec 2023; receipts $454B vs $429B in Dec 2023.
  • December NFIB Small Business Index was reported at 105.1 vs 101.7 in November.

Commodities, Currencies and Treasuries

  • February gold prices edged higher $3.70 to settle at $2,682.30 an ounce, helped by a softer U.S. dollar and inflationary risks posed by President-elect Donald Trump’s potential tariff policies, which could influence the pace of Federal Reserve monetary policy easing this year. Slightly weaker than expected inflation data gave investors faint hope that the Federal Reserve would continue its rate-easing path this year.
  • U.S. WTI crude oil futures fell -$1.32 or 1.67% to settle at $77.50 per barrel, pulling back off four-month highs as the market continues to digest supply implications of new US Treasury Department sanctions against Russia. Elsewhere, there was news that Israel, Hamas agree in principle to ceasefire draft deal, as per CBS News.
  • The U.S. dollar weakened early following a report that President-elect Trump’s economic team is discussing a gradual approach to tariffs; the dollar index (DXY) dropped -0.6% to 109.25 late day. Treasury yields were steady with the 10-yr holding slipping 1 bps to 4.787%.

 

Macro

Up/Down

Last

WTI Crude

-1.32

77.50

Brent

-1.09

79.92

Gold

3.70

2,682.30

EUR/USD

0.0062

1.0306

JPY/USD

0.42

157.89

10-Year Note

-0.014

4.787%

 

Sector News Breakdown

Consumer

  • In Food & Beverage: HRL said CEO James Snee is set to retire at the end of 2025, after leading the company for nearly nine years and will serve as a strategic advisor to the board until the end of his tenure and for 18 months afterward, while it identifies a successor; NOMD said it expects FY25 organic revenue growth of 1%-3% and mgmt remains confident in its ability to achieve its previously issued full year 2024 guidance ahead of ICR conference. BF said it would cut about 12% of its global workforce as they look to cut costs amid weak alcohol demand.
  • In Retail: jeweler SIG shares fell after forecasts Q4 adj. Oper income $337M to $347M, below prior forecast $397M to $427M and guides Q4 total sales $2.32B to $2.34B, also below forecast $2.38B to $2.46B.

Leisure, Gaming & Lodging:

  • In Casinos & Gaming: LVS was downgraded to Equal Weight from Overweight at Morgan Stanley and cut both CHH and SHO to Underweight in casino/leisure space saying most preferred names were VIK, TNL and WYNN. The firm modestly tweaks its assumptions to reflect tepid, but consistent domestic growth and a more guarded view on Macau/China for casinos and cut LVS rating as consensus appears to already reflect strong underlying market growth plus share gains in Macau, resulting in less upside to #s and a more balanced risk-reward. They cut CHH and SHO with recent stock performance predicated on valuation expansion.

Energy and Industrials

  • In Energy: the sector (XLE) takes a little break after outperformance to kick of 2025 (XLE +5.3% YTD) as oil prices pull back; DVN was upgraded from Hold to Buy at Benchmark noting the E&P company reset and outperformed guidance last year, but notes they’ve underperformed other oily large caps because of M&A noise.
  • In Homebuilders: KBH reported a better-than-expected quarter as homes delivered rose 17% y/y to 3,978 and EPS $2.52 vs est. $2.45 on revs $1.999B vs est. $2.008B, housing adj gr mgn 20.9%; guides FY25 housing revs $7.00-7.50B vs est. $6.988B, avg selling price $488-498K, homebuilding operating income as percent of revs approx 10.7% assuming no inventory-related charges, housing gr mgn 20.0-21.0% assuming no inventory-related charges.
  • In Industrials: URI agreed to buy HEES for $92 per share in cash, reflecting a total enterprise value of approximately $4.8 billion, including approximately $1.4 billion of net debt as they gain a fleet of equipment to serve construction and industrial markets. AYI was upgraded to Overweight at Morgan Stanley and raised tgt to $370 as models’ material EPS upside on firmer gross margin and under-appreciated accretion from the recently closed QSC deal. AOS was to Outperform from Perform at Oppenheimer with a price target of $88 given its stance that A.O. Smith’s through-the-cycle earnings resilience/power are underappreciated, stock.
  • In Heavy Duty Machinery: PCAR was upgraded to Buy from Neutral at Bank America as it adopts a more positive view on the US truck production cycle and notes PCAR shares underperformed in 2024 (+11% vs SPX +25% vs XLI +17%) on price vs cost concerns and production downturn in the truck market. CMI was also upgraded, rising from Underperform to Neutral at Bank America noting CMI execution notably improved in 2024 following a rocky stretch. CMI is clearly on stronger footing and the power gen unit is likely a tailwind out to 2027e.

Banks, Brokers, Asset Managers:

  • In Banks: earnings kick off tomorrow 1/15 with some of the biggest banks out there including JPM, WFC, Citi (C), GS, BK and BLK then on Thursday 1/16 we get BAC, FHN, MS, MTB, PNC, and USB, then Friday 1/17 CFG, HBAN, RF, STT, TFC and WBS with focus on regionals. FCNCA was upgraded to Outperform at KBW saying next Friday’s earnings report (1/24) is likely the catalyst for a positive 2025E NII surprise; GBCI announced the $245M all-stock acquisition of Bank of Idaho (BOID, adding $1.3B in assets and strategically deepening GBCI’s footprint in Idaho and Washington.
  • In Brokers and Exchanges: RILY shares gain after releasing its quarterly report for three months ended June 2024, after delaying it for months due to issues stemming from its investment in retailer Franchise Group; says it will return to a normal filing cadence in 2025; reports net loss of $14.35 per share for Q2 vs. $1.55 profit y/y.
  • In Asset Managers: Monthly AUM data released for several companies: 1) AB prelim Dec assets under mgmt fell -2.6% m/m to $792B during December 2024 from $813B at the end of November amid market depreciation, coupled with net outflows across all three channels (Institutions, Retail and Private Wealth); 2) IVZ prelim month-end AUM fell -0.6% m/m to $1,846B; 3) VRTS prelim Dec AUM was $175.0B and other fee earning assets of $2.3B for total client assets of $177.3B as of December 31, 2024.

Bitcoin, FinTech, Payments:

  • In Payments & FinTech: Seaport Global with several changes in the sector as they downgraded MA from Buy to Neutral as continues to like the story but see the shares as relatively fairly valued here; FLYW was downgraded from Buy to Neutral saying they lost confidence in the story as the India/Canada situation and is growing more concerned post the US election about the MT-LT outlook for China-inbound into the US in Education; Visa (V) was upgraded to Buy from Neutral primarily due to Visa’s more significant US exposure (a key theme of theirs in ’25) and FI was upgraded from Neutral to Buy with $240 tgt as they like the earnings power and believes Fiserv stands to benefit as US SMBs eventually re-accelerate their growth (a second key theme of Seaport).

Insurance & Services:

  • Multi-line insurance/brokers: Wells Fargo upgraded AON from Equal Weight to Overweight (tgt to $410 from $277) saying the worst seems to be behind Aon, as organic has stabilized, M&A revenue is bouncing back, and NFP is benefiting growth (by a small amount). Wells downgraded VOYA from Overweight to Equal Weight saying the risk-reward in the stock is skewed to the negative given current stop loss performance and potential future deterioration in the block. As such, feels 2025 consensus EPS remains too high.
  • Insurance industry: (ALL, AIG, MCY, CB, TRV, PGR) the group has been pressured over the last week as ongoing LA wildfires losses could top $30B for insurance industry according to reports; the Palisades and Eaton blazes remained largely uncontrolled as fires destroyed more than 12,000 structures. Jefferies said today that based on CAT-exposed CA premiums JEFF estimate ALL, RLI and KNSL are the most exposed to this event vs WRB and AIG as the least. At about 6% each, est. RLI and SKWB are most oversold on LA wildfire fears followed by CB at 3%.
  • Regarding MCY, which came into today down 11-straight days, Reuters noted, citing Raymond James that as premiums rise for homeowners’ insurance in California, so will the company’s battered stock. Raymond James said they estimate that Mercury’s homeowners’ business in California accounted for about 18% of the premiums it wrote in 2024 and that its exposure to the multimillion-dollar homes of Los Angeles seems limited, based on filings that says most homes insured by the company are valued at $1M or less.

REITs:

  • Deutsche Bank initiated coverage of the Industrial REITs sector with a neutral weighting from a sub-sector allocation within a REIT dedicated portfolio. They initiated four individual names with EGP being the lone Buy Rated name with a $180 price target and are hold rated on TRNO ($60 PT), FR ($52 PT) and REXR ($40 PT) saying they believe that 2025 will closely mirror 2024 in terms of fundamentals, as demand continues to normalize in a post pandemic world. Their take on industry trends is largely cautious (especially in 1H25), but the neutral weighting also balances this cautious outlook against the current discounted valuation for the sector.

Biotech & Pharma:

  • Hikma Pharmaceuticals announces that it has entered an exclusive commercial partnership with EBS for the sale of Kloxxado naloxone HCl nasal spray 8 mg in the U.S. and Canada
  • LLY provided a disappointing Q4 revenue outlook (about $13.5B vs. est. $13.93B), citing slower-than-expected growth in sales of its weight-loss drugs; said sees growth in 2025 from new medicines (the weaker outlook for their obesity drugs weighed on shares of other makers NVO, ALT, VKTX among them).
  • RGNX shares rise after saying it has partnered with Japan’s Nippon Shinyaku Co to develop and commercialize two gene therapies, RGX-121 and RGX-111, to treat Mucopolysaccharidoses Diseases; RGNX will receive $110 mln as upfront payment and up to $700 mln as milestone payments from Nippon Shinyaku.
  • TGTX provided preliminary 4Q results during their conference presentation, with Briumvi US sales of $103.6M (vs. $96.5M est.) and guided FY25 global revenue to $540M (vs. $553M est.) and Briumvi of $525M (vs. $526M est.); forecasts 2025 total revenue of about $540M vs est. of $549.5M.

Healthcare Services & MedTech movers:

  • In Telehealth: TDOC joined AMZN’s health benefits connector for cardiometabolic programs designed to improve heart and metabolic health; said eligible AMZN customers can enroll in TDOC’s diabetes, hypertension, pre-diabetes and weight management programs through AMZN’s Health Benefits Connector.
  • In Medical Research: CRL shares slipped after saying expect 2025 revenue will decline organically in a similar range as estimated in 2024 and expects 2025 non-GAAP operating margin will be modestly below estimated 2024 level. ICLR shares fell after guiding 2025 EPS $13.00-$15.00 vs. est. $14.83 and midpoint of co’s 2025 rev outlook of $8.05B -$8.65B is also lower than estimates of $8.50B.
  • In Healthcare Services: CAH said it expects FY25 to be toward the high end of their previously provided range of $7.75 to $7.90, driven by continued strength in Pharma and Specialty Solutions segment. PBM’s saw weakness (CI, CVS, UNH) after Bloomberg reported the FTC accuses the co’s of abusing middleman rule as report notes PBM’s overcharge patients for key treatments citing cancer, multiple sclerosis, HIV, organ transplants. FTC report finds three major PBMs inflated drug prices by $7.3B from 2017-2022.
  • In MedTech: INGN rises as guides prelim Q4 revs $79.0M to $80.0M, vs. est. $73.9M; raises FY24 revenue view to $334.5M-$335.5M from $329M-$331M vs. consensus $329.62M.
  • In Life Sciences & Tools: DHR guides preliminary Q4 non-GAAP core revenue "essentially flat" y/y vs prior guidance for down LSD and said Q4 total revenue is expected to be up LSD vs -0.3% est.

Materials & Chemicals

  • APD was upgraded from Equal Weight to Overweight at Wells Fargo as believes an improved APD will emerge post its upcoming AGM, with an improved risk culture that should drive attractive growth and multiple expansion.
  • ADM was downgraded from Neutral to Underperform at Bank America and cut tgt to $54 from $63 saying the outlook for ADM’s profitability has soured considerably over the past few months with increased macro risks stemming from the US election results as well as the company’s own performance.
  • CE was double upgraded to Buy from Underperform at Bank America driven by signs that the acetyls market is bottoming, expected demand recovery in the years ahead for most of CE’s products, its view that leverage remains addressable with free cash flow.
  • FMC was upgraded from Underperform to Neutral at Bank America as stills believe its path to recovery off the 2024 trough will be tough given company-specific issues, challenging ag fundamentals, and more recently concerns about trade wars and a strong USD.
  • EMN was upgraded from Neutral to Buy at Bank America after noting 2024 played out worse than expected for commodity chemical companies, and notes valuation looks attractive once again at 7.5x EV/EBITDA and 9.8x P/E on its 2025 estimates, and they remain constructive on the company’s revenue/earnings growth prospects.
  • OLN was upgraded to Buy from Neutral at Bank America saying valuation is now highly attractive in its view at 5.1x its 2025E EBITDA and even just 7.3x 2024’s depressed EBITDA and sports the best free cash flow yield in BAML’s commodity coverage.
  • In coatings preview, RBC lowered 4Q24/FY25/FY26 estimates slightly for SHW, AXTA, and PPG and said they continue to favor SHW and AXTA on share gains, price/cost, and margin expansion initiatives.
  • In Metals & Mining: ESI was downgraded from Buy to Neutral at Bank America saying weaker consumer electronics and industrial topline drivers along with higher currency headwinds applied to an already lowered year ago comp (given the divestiture of the $35M EBITDA Graphics business) results in 2025 EBITDA likely only increasing LSD %. Gold miners (GOLD, AEM, NEM) saw a bum following the PPI economic data early lifting gold).

Internet, Media & Telecom

  • In Media and Social media: Bloomberg reported Chinese government officials are considering whether to let Elon Musk acquire the US operations of TikTok if the company fails to fend off a controversial ban on the short-video app. https://tinyurl.com/5n7pefe5 (note TikTok says report that China is exploring sale of app to Elon Musk ‘pure fiction’ after Bloomberg made the claim); ANGI shares rose after IAC announced it would spin off its stake in the home services company to shareholders. MTCH was downgraded to Neutral from Buy at BTIG and cut estimates to align with Match’s investor day outlook and says sees no real line of sight on a Tinder turnaround. RMBL was downgraded to Neutral from Buy at DA Davidson saying new that Michael Quartieri will replace Mike Kennedy as CEO, is "surprising" as Kennedy just became CEO in October 2023 following the ouster of Marshall Chesrown.

Hardware & Software movers:

  • CRNT announced that it has entered into a definitive agreement to acquire End 2 End Technologies, for approximately $8.5 million, and up to an additional $4.3 million subject to achieving certain financial goals primarily in 2025 and paid mostly in 2026
  • COMM was upgraded to Neutral from Underweight at JP Morgan on the basis that strategic debt refinancing allows breathing room for the company in combination with expectations of double-digit growth in each of its three revenue segments of CCS, ANS, and core NICS in 2025.
  • TTAN reports Q3 revs $199.3M; sees Q4 revenue $199M-$201M vs. consensus $193.58M; sees Q4 income from operations $3M-$4M; sees FY25 revenue $761.6M-$763.6M vs. consensus $755.37M.

Semiconductors:

  • ACMR raises 2024 revenue view to $755M-$770M from $725M-$745M and sees 2025 revenue $850M-$950M, vs. consensus $902.95M.
  • AEHR shares fell as reported Q2 revenue $13.5M, down from $21.4M last year.
  • APLD shares rose after Australia’s Macquarie said it will invest up to $5 billion in Applied Digital’s AI data centers and will take a 15% stake in the company (confirms a report in the WSJ overnight). Macquarie’s asset management arm has agreed to invest up to $900M in a data center campus that APLD is developing in North Dakota.
  • Silicon Carbide industry revenue and capex estimates lowered for WOLF, ON, STM Infineon, and Rohm at Susquehanna to reflect updated guidance. We also note the following industry headwinds: 1) slower auto SAAR; 2) softer EV demand; 3) weaker industrial end market; and 4) lower pricing for both SiC materials and devices. Overall, we have lowered our 2030 SiC industry revenues from ~$11.3 billion to ~$10 billion and still note a wide gap between companies’ ambitious growth forecasts and our more tempered expectations for their SiC businesses.
  • Jefferies provided 2025 outlook for semis saying looking forward to C25 they expect AI stocks to continue outperforming their Analog & Semi-Cap counterparts, with AVGO leading the way (top pick). Updated cycle analysis suggests plenty of room to run with continued AI/Memory growth aided by potential 2H25 recovery in more traditional end markets. Overall, they remain optimistic about the Semis investment landscape for 2025 but emphasize selectivity as the days of rising tides lifting all boats are done.

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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