Closing Recap

Thursday, March 06, 2025

U.S. stocks opened in negative territory following overnight weakness, attempted a late morning rally before failing as the S&P 500 index (SPX), which touched all-time highs of 6,147.43 on February 19^th, tumbled as low as 5,711.64 this afternoon (below the Tuesday low of 5,732.59) and below its 200-dma support of 5,731 (1^st time below 200dma since Nov 2023), now 7% off recent highs. Positive tariffs headlines from President Trump late morning and an upwardly revised Q1 GDP estimate from the Atlanta Fed failed to boost stock markets as investors now wait for the monthly nonfarm payroll report data tomorrow morning. @bespokeinvest noted “the average US stock is now -30% below its 52-week high, which on average was made on September 21, 2024.” Just pure technical momentum breakdown leading stocks much lower this afternoon with the Nasdaq Composite more than 11% from its December highs, the Russell 2000 down more than 15% from its all-time bests as tech leaders such as semiconductors (SOX) fell -4.5% today below 4,500 to its lowest levels since September ahead of Broadcom (AVGO) earnings tonight. The unknown impact on consumers and businesses from tariffs, weaker economic data/jobs results raising US growth concerns and the broader strength in European markets leading to a sell the news event for US markets after recent record highs.

On tariffs, President Donald Trump tweeted late this morning: “After speaking with President Claudia Sheinbaum of Mexico, I have agreed that Mexico will not be required to pay Tariffs on anything that falls under the USMCA Agreement. This Agreement is until April 2nd. I did this as an accommodation, and out of respect for, President Sheinbaum. Our relationship has been a very good one, and we are working hard, together, on the Border, both in terms of stopping Illegal Aliens from entering the United States and, likewise, stopping Fentanyl. Thank you to President Sheinbaum for your hard work and cooperation!” Earlier in a CNBC interview, Commerce Secretary Howard Lutnick had suggested Trump is likely to defer tariffs on Canada and Mexico for all goods compliant with the USMCA trade deal.

In Central Bank News, the European Central Bank (ECB) cut interest rates on deposit facility to 2.50% vs 2.75%, cut the benchmark refinancing rate to 2.65% vs 2.90% and cut the interest rate on marginal lending facility to 2.90% vs 3.15% noting inflation has continued to develop broadly as staff expected, and latest projections closely align with previous inflation outlook. The ECB now forecasts headline inflation averaging 2.3% in 2025, 1.9% in 2026 and 2.0% in 2027 and ex energy and food, staff project an average of 2.2% in 2025, 2.0% in 2026 and 1.9% in 2027. Also in Europe, German government bonds fall again, lifting yields after jumping 30-bps on Wednesday after Germany’s next government agreed to create a 500-billion-euro infrastructure fund and overhaul borrowing rules.

In sentiment readings this week: This week’s NAAIM Exposure Index number declined from last week’s reading: 74.96 (from 87.87) from the recent peak of 99.24 from 12/11, vs. trough reading of 64.10 to start the year on 1/1. Also, The bull-bear spread in the American Association of Individual Investors (AAII) weekly survey was -37.8 vs -41.2 last week as Bulls fall to 19.3% from 19.4%, Neutrals rise to 23.6% from 20% and Bears fall to 57.1% from 60.6%. Meanwhile, the Atlanta Fed GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.4% on March 6, up from -2.8% on March 3^rd.

• Weekly Jobless Claims fell to 221,000 in the latest week from 242,000 prior and vs. consensus 235,000; the 4-week moving average edged higher to 224,250 from 224,000 prior; continued claims climbed to 1.897M from 1.855M prior week (prev 1.862M).
• January trade deficit fell to (-$131.4B) from Decembers (-$98.1B) and slightly more than the (-$127.4B) consensus; Jan goods deficit $156.77B, services surplus $25.39B; January exports +1.2% vs Dec -2.6%, imports +10.0% vs Dec +3.6% and U.S. Jan exports $269.82B vs Dec $266.52B, imports $401.20B vs Dec $364.58B.
• U.S. employers announced 172,017 layoffs for February, up 245% from January and the highest monthly count since July 2020, Challenger, Gray & Christmas reported. Challenger put the total of announced federal job cuts at 62,242.
• U.S. Jan wholesale sales fell -1.3% vs Dec +1.4%; Jan wholesale inventories revised to +0.8% (consensus +0.7%) from +0.7%; Jan stock/sales ratio 1.33 months’ worth vs Dec 1.30 months.

• The euro traded to a fresh 4-month high against the US dollar of 1.0854, rising 4.5% this week alone vs. the greenback after Germany is ramping up spending, with a massive 500 billion euro ($540.90 billion) special fund sought for infrastructure and plans to increase defense investment long-shackled by rigid borrowing rules. Earlier this morning, the ECB cut interest rates for the sixth time in nine months, as expected, but revised higher its near-term inflation forecast. The dollar index (DXY) however continues to struggle as the White House pressed ahead with planned tariffs that have raised fears of a prolonged global trade war. By day’s end, the euro saw some profit taking, turning lower on the day back below 1.08.

• In Restaurants: WEN issued a target of global sales between $17.5B-$18B for 2028; guided for its total number of restaurants to sit between 8,100-8,300 in three years-time, while adj EBITDA expected to be between $650M-$700M; also set targets of annual net unit growth between 3%-4%, annual sales growth between 5%-6%, and annual adjusted EBITDA growth between 7%-8%; CBRL shares jumped on results and raised guidance.

• In Department Stores/Off price retail: JD reported Q4 2024 revenues rose 13.4% y/y to $47.5B, and full-year revenues of $158.8B, up 6.83% Y/y; retail revenue rose 14.73% to $42.1B and Logistics grew 10.37% to $7.13B; BURL shares jumped on Q4 beat as EPS $4.13 tops consensus $3.77 on slightly better revs $3.27B (est. $3.24B) and Q4 comparable store sales growth was 6% vs. guidance of 0% to 2%, guides year EPS below views; Macy’s (M) forecast annual sales and profit below Wall Street’s expectations, with sales $21B-$21.4B vs. est. $21.81B and EPS of $2.05-$2.25 vs. est. $2.31 (follows recent cautious guides from WMT and TGT).
• In Specialty Retail: VSCO reported a top and bottom line beat for Q4 but guided Q1 net sales $1.30B-$1.33B below expectations of $1.39B saying it factored in unseasonal weather across much of the U.S.; mgmt cited weakening trends in late-Jan./early-Feb. and guided Q1 and FY25 sales/EPS. In Specialty Retail: mattress retailer SNBR named Linda Findley as its new CEO, starting April 7 (following roles as CEO of Blue Apron and COO of Etsy), posted mixed Q4 results with EPS loss (-$0.21) vs. est. loss (-$0.23); Q4 revs $377M vs. est. $389.75M; said guidance was suspended pending MS. Findley’s onboarding.

• In Industrials: MEI shares tumbled on weaker Q3 results as adj EPS loss of ($0.21) was worse than the est. ($0.12), adj EBITDA $11.4Mm vs est. $20.07Mm on revs $239.9Mm vs est. $265.52Mm; guides Q4 sales $240-255Mm vs est. $293.52Mm and pre-tax income ($1Mm) to $3Mm vs est. $9.287Mm. FAST shares rose after posting a 5% y/y increase in Feb organic daily sales, compared with 1.9% rise in January, February heavy manufacturing sales grew 4.8% y/y, other manufacturing sales rose 10.4% y/y, but non-residential construction end-market continues to show weakness with a 6.7% fall y/y.
• In Metals: copper prices extend recent gains, rising to 4-month highs boosting FCX, SCCO, TECK again early; FCX was upgraded to Buy at Deutsche Banks on valuation disconnect saying shares have materially underperformed the copper price over the past six months, partly due to operational issues in Indonesia and recent downgrades to 2025 guidance.

• In Lending: TREE shares surged on earnings results as Q4 adj EPS $1.16 above consensus loss (-$0.05); Q4 revs $261.5M vs. est. $238.12M; Q4 Insurance business revenue $171.7M, growth of 188% y/y; sees Q1 revenue $241M-$248M vs. est. $247.74M; sees Q1 adjusted EBITDA $25M-$27M.
• Real Estate Services: WD was upgraded to Outperform at KNW Inc. as two key factors could turn more positive: 1) multifamily rent growth, which it expects to improve into 2026 due to better supply, and 2) pent-up demand for multifamily acquisitions and refinancing, building since 2022.

• HIMS shares fell after a U.S. federal judge has denied an injunction that would have allowed compounding pharmacies to keep making copies of LLY’s popular weight-loss drug Zepbound in the U.S.; HIMS sells compounded versions of Novo Nordisk’s Wegovy and Ozempic, chemically known as semaglutide.

• Healthcare Technology/Services: VEEV Q4 revenue outperformed (+14% y/y normalized), which flowed through to margins (43%) and earnings (+26% y/y), FY26 guidance +11% revenue and EPS growth exceeded consensus (+11%/5%) and Subscription growth guide (+14%, ~85% of revenue) was solid.
• In Nursing Home REITs (OHI, SBRA, CTRE): Barron’s noted as the Trump administration looks for ways to reduce federal Medicaid spending, a Tuesday note from Mizuho Securities examined one proposal that could hit nursing home stocks. The change would restrict state “provider taxes,” a way that states fund their share of Medicaid spending, but also an arrangement that can shift spending to the federal government. The Congressional Budget Office has said restrictions on provider taxes could save the federal government $600 billion over the next decade.

• ZS reported strong Q2 results with outperformance across the board while the Q2 beat flowed into higher FY/25 guidance as 2H assumptions remain largely unchanged. Calculated billings of $743M rose 18% Y/Y, beating Street estimates by $23M, fueled by 25% Y/Y growth in unscheduled billings.
• APP shares tumbled below $290 per share, falling for the 1th time in last 13 days and off highs of $525.15 on 2/13, extending losses from 2.26 short calls from two short seller blogs (Fuzzy Panda and Culper).
• For ADBE, NOW, Department of Government Efficiency @DOGE tweeted: “HUD completed the same audit. Initial findings on paid software licenses: 35,855 ServiceNow licenses on three products; only using 84, 11,020 Acrobat licenses with zero users, 1,776 Cognos licenses; only using 325, 800 WestLaw Classic licenses; only using 216, 10,000 Java licenses; only using 400…and says all are being fixed”

• The Philadelphia Semiconductor Index (SOX) fell over 4.5% this morning to lows below 4,500, the worst levels since September led by the MRVL results and continued selling pressure on AI related winners in 2024, as NVDA, AVGO, ARM, and others extended recent declines early on. AVGO earnings tonight.