Mid-Morning Look

Friday, January 17, 2025

U.S. stocks extend their massive gains on the week, boosted by strong bank earnings this week, cooler inflation reports (CPI, PPI), dovish Fed speak, a pullback in the dollar and Treasury yields, and strong data showing signs of a strong economy. Meanwhile, the CBOE volatility index (fear index, VIX) touches a three-week low; last down -6% at 15.60. The 10-year yield is down more than 20-bps off weekly highs to 4.6% as the collar inflation data this week raises hopes for more than 1 rate cut by the Fed this year. Banks have been leaders this week in terms of earnings from JPM, C, WFC, BK, TFC, MS, GS and many others. US listed China stocks jumping (BABA, BIDU) after better China GDP data and after Donald Trump said he had a good discussion with Chinese leader Xi Jinping on a number of issues, including trade, fentanyl and TikTok. Cryptocurrency surges ahead of Trump inauguration on Monday where he has been very pro crypto during his campaign, as Bitcoin tops $104,000 today, more than $14K bounce off last week low and about $4K from all-time highs. For the week, the S&P 500 is on track for a weekly gain of +2.8%, the Nasdaq +2.2%, the Dow +3.75% and the Russell up over 4.2% this week so far heading into 3-day holiday weekend with Trump inauguration on Monday afternoon.

In macro news, economic data today strong as Housing starts climbed in December to the fastest pace since early 2024, reflecting a surge in multifamily projects and a more modest advance in one-family homes. New residential construction increased nearly 16% to an annualized rate of 1.50 million, rebounding after a three-month slump despite a spike in mortgage rates. The IMF boosted its 2025 global growth outlook, largely on an upgraded outlook on the U.S. economy that offset generally disappointing growth around the rest of the world. The Fund now sees world growth at 3.3%, up from the 3.2% prior forecast, though it is still slightly below the 3.7% average (2000-2019). China also with positive GDP data overnight boosting stocks.

• December Industrial Output rises +0.9%, above consensus +0.3% and vs. Nov +0.2% while capacity utilization rate rises to 77.6% (consensus 77.0%) vs Nov 77.0% (previous 76.8%).

• The U.S. government named 15 drugs that will be subject to the second round of price negotiations by Medicare, including Ozempic and Wegovy (made by NVO), the drugs at the center of the weight-loss craze. The Biden administration said the drugs account for $41 billion in annual Medicare spending, and that price negotiations could result in significant savings. On the list of target medicines are treatments for cancer, type 2 diabetes and asthma and cover several drugs made by ABBV, AMGN, PFE, BMY, NVO, AZN, GSK and others.
• In Airlines: AAL was upgraded from Underperform to Neutral at Bank America and raise tgt to $20 from $12 saying the airlines should benefit from the strong trends discussed by DAL last week: solid premium revenues, a build back of corporate travel, and growth on Atlantic routes. Bank America downgraded LUV and JBLU from Neutral to Underperform citing less exposure to corporate, premium, and international routes, The firm notes both airlines trade at the high end of historical valuation ranges despite less exposure to the strongest industry trends.
• TD Cowen with several changes in software as they downgraded HUBS to Hold from Buy (but raised tgt to $725 from $680), saying they see the shares as fairly valued following the recent rally. It models HubSpot’s model growth decelerating from 20%-plus to mid- to upper-teens. SAP was upgraded to Buy from Hold (tgt to $305 from $240) saying the stock appreciation and growth execution was resilient in 2024 and sees more of the same ahead. CRM was upgraded to Buy from Hold (tgt to $400 from $380) saying recent share pullback has created a compelling entry point.
• Software outlook for 2025 at Citigroup leads to NET upgraded to Buy, flags ZS, DT as heavily debated sub-sector plays; named CRWD, VRNS on negative 90-day catalyst watches, with OKTA on positive 90-day watch list catalyst. The firm said another year of anemic cyber budget growth surfacing in CITI’s CISO survey, breeds its skepticism in the group’s ability to outrun such dynamics this time, where CY24’s relative outperformance was largely valuation re-rating led, as estimates barely moved.

• INTC +7%; after a report from SemiAccurate was circulating on Friday about a company looking to acquire Intel https://tinyurl.com/3dvjy6nw
• LITE +4%; Barclays double upgraded LITE to Overweight from Underweight and PT to $125 from $80 and rolling out 2026 numbers across semi coverage.
• QRVO +10%; after an SEC filing showed activist investor Starboard Value built a 7.7% stake in the chipmaker.
• SLB +7%; reported Q4 adj EPS $0.92 vs. est. $0.90 on better revs $9.28B vs. est. $9.18B while boosts its dividend and begins $2.3B in accelerated share repurchases along with positive comments on c/c saying expect activity rebound in Q2, particularly in international markets.
• TFC +5%; on earnings as Q4 EPS $0.91 vs. est. $0.88; Q4 revs $5.11B vs. est. $5.06B; Q4 Provision for credit losses $471M and net charge-offs $453M; sees Q1 adj rev down about 2% Q/Q and sees FY adj rev up 3% to 3.5%.

• HIMS -6%; after Bank America warned tracking data indicates that Q4 Online revenue remains robust but may be trending below Visible Alpha (VA) consensus expectations.
• JBHT -6%; after mixed results/guidance as revs of $3.15B were in-line with consensus but EPS missed; shares fell further overnight after mgmt said Q125 operating income would be down -20% to -25% sequentially, implying operating income of ~$175M
• NVO -3%; after the U.S. government named 15 drugs that will be subject to the second round of price negotiations by Medicare, including Ozempic and Wegovy (made by NVO).
• RF -1%; shares fell on results as Q4 EPS $0.56 vs. est. $0.55; and Q4 revs $1.845B vs. est. $1.855B; says guides Q1 NII to decline modestly vs. 4Q; Q4 net interest margin 3.55% and provision for credit losses $120M.
• VST -2%; after a fire at a battery facility on the site of its Moss Landing power plant in Monterey County, California prompted orders for the evacuation of places nearby; the fire began in a building that contains lithium-ion batteries on Thursday afternoon.